Much for Investors to Ponder on FOMC Day

July 29, 2020

In the seven weeks since the Federal Open Market Committee, a resurgent intensification of the Covid-19 pandemic has cast a long shadow over economic prospects in the United States and many other countries. Persistent urban protests in the United States, deepening strains between Beijing and Washington, and President Trump’s increasing desperation to redefine the election of 2020 have added to investor anxiety. This quarter’s round of corporate earnings reports has also worried financial markets. The FOMC announcement at 16:00 GMT today will be followed 30 minutes later by Chairman Powell’s press conference, but forecast updates are not scheduled for this mid-summer meeting.

Several U.S. states reported record new cases of the coronavirus, including the closely watched trio of Texas, Florida, and California. The global and U.S. death counts slightly exceed 664k and 152k.

The Fitch credit rating agency downgraded Japan’s outlook to negative from stable.

Today has been a fairly crowded from a data-release standpoint but involving second-tier indicators for the most part.

Net overnight movements in key dollar relationships have been unremarkable, constraining the U.S. currency’s losses to 0.2% or less.

Ten-year sovereign debt yields edged a basis point higher in the United States, Germany and Great Britain. Among commodities, the prices of oil and gold rose 1.0% and 0.3% overnight.

In stock market action, share prices closed down 1.2% in Japan and 1.1% in India but up 2.1% in China. European markets are also mixed, so far falling 0.7% in Italy but rising 0.9% in France.

July consumer confidence measures released today revealed

  • A 5-month high in South Korea, which was 13.4 index points higher in July than April’s low but still 12.7 points below February’s level.
  • A 4-month high in in Taiwan to 69.43, still closer to May’s low of 64.87 than January’s reading of 85.3.
  • Two-month lows in France of 94 and Sweden of 83.3. In February prior to lockdowns, the readings in those economies had been 105 and 98.5. On a brighter note for Sweden, business sentiment rose 11.8 index points to 80.7, having previously tumbled from 97.6 in January to 56.5 in April.

The Swiss ZEW expectations index, a gauge of investor confidence, relapsed to 42.4 in July following an improvement from -45.8 in March to +48.7 by June.

Although retail sales in Portugal and Spain posted impressive monthly rises of 4.4% and 17.8% in June, such were still 6.6% and 4.7% below year-earlier levels.

A 17.6% year-on-year drop in Thailand industrial production in June was the 14th straight decline.

Unemployment rose half a percentage point to a 38-month high of 4.6% in Hungary in June and to a 43-quarter high of 2.9% in the second quarter in Singapore.

Australian consumer prices plunged 1.9% last quarter, their steepest quarterly drop in 72 years. This resulted in the first year-on-year decline (0.3%) since the Asian debt crisis began in 3Q97.

South African CPI inflation of 2.2% last month was just 0.1 percentage point above May’s 15-year low.

Italian producer price deflation lessened slightly to 4.5% in June from 5.3% in May. The average year-on-year drop of producer prices in the first half of 2020 was 3.9%.

Producer prices in Singapore posted sequential year-on-year plunges of 9.3% in March, 15.0% in April, 14.6% in May and 9.7% last month.

Import prices in Germany were below year-earlier levels in each month of the first half of 2020, but the 5.1% drop in June was the smallest 12-month rate of decrease since -2.0% in February. Excluding crude oil products, German import prices still posted a 2.5% decline in the year through June.

Austria’s manufacturing purchasing managers index rose another 6.3 index points in July to a 19-month high of 52.8, signaling a return to growth instead of contraction. During the height of the pandemic lockdown, the index had fallen to a record low of 31.6 in April.

British M4 money growth accelerated to 13.1% last month from 11.9% in May, reflecting the Bank of England’s expansive stance.

Real GDP in Hong Kong fell last quarter for a fourth straight quarter, but the dip of 0.1% was the smallest in that span. GDP was 9.0% smaller than in the spring quarter of 2019, similar to its 9.1% on-year drop in the first quarter.

Turkey had a $23.87 billion trade deficit in the first half of 2020, which was 73% wider than a year earlier.

The advance estimate of the U.S. goods and services trade deficit in June was 70.64 billion, 4.6% smaller than in the previous month. Exports rebounded more sharply than imports from May levels. U.S. pending home sales will be reported later this morning, but the main event of this Wednesday will be the FOMC policy announcement, which may entail some non-interest rate elements of enhanced stimulus.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.





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