Stocks and Dollar Mostly Up Despite Concerns on Three Fronts

August 3, 2020

The relentless Covid-19 virus remains a top concern. The number of global cases jumped three quarters of a million this time last Friday to 18.2 million, and the U.S. share of that total is fast approaching 700k. Warnings have been made that renewed lockdowns may be necessary. News on vaccine development has been promising, but a collateral fear is that safety and proper vetting of effectiveness may be compromised in the interest of speed.

So long as the pandemic spreads rapidly, evidence of an economic rebound is being countered by a second broad concern that a second wave of the virus will cause a big setback in growth. Monday’s economic data have been dominated by July manufacturing purchasing managers surveys. Even in economies that show improved PMI levels, a disturbing element is that labor markets have by and large lagged other areas. Job shedding is still happening in most countries. The U.S. July labor market report gets released on Friday, and rising new jobless insurance claims the last two weeks suggests a disappointing report. Meanwhile, lawmakers in Congress have been unable to compromise on a fiscal stimulus package. As a result, millions of American’s will experience a significant drop in their weekly unemployment insurance payments, and home foreclosures and rental evictions are a new risk.

The third broad worry of investors is that America’s election in November may not yield immediately clear results due to unprecedented mail-in voting and delays in tallying such ballots that emerged in primary elections such as New York’s.

In spite of the above concerns, the dollar recovered 0.6% against the Australian dollar, 0.5% versus the Swiss franc, Mexican peso and sterling, 0.4% vis-a-vis the euro, and 0.2% relative to the yen.

Share prices climbed 2.2% in Japan, 1.8% in China, and are up thus far by 2.1% in Germany, 1.7% in Switzerland, 1.1% in France and 1.7% in Great Britain.

But a continuing sign of unease is the elevated price of gold, which is hovering above $1,985 per ounce. West Texas Intermediate crude oil slipped 0.5% overnight.

The 10-year U.S. Treasury yield and Japanese JGB yield increased by 2 and 1 basis points, while their British counterpart dipped a basis point.

There were some exceptions to the improved purchasing manager indices in most economies. Manufacturing PMI readings fell to two-month lows of 48.4 in the Philippines, 47.6 in Vietnam, 46.0 in India, 48.4 in Russia, 48.6 in Greece, and 51.2 in South Africa. Norway’s score of 43.3 was 5.6 points lower than in June and at a 3-month low. The Dutch PMI printed at a 4-month low of 47.9.

Economies with higher PMI scores in July than June included Euroland‘s 19-month high of 51.8, Japan’s 5-month high of 45.2, China’s 114-month peak of 52.8, Indonesia’s 5-month high of 46.9, Australia’s 19-month high of 54.0, South Korea’s 5-month high of 46.9, Taiwan’s 4-month high of 50.6, Thailand’s 4-month high of 45.9, Poland’s 21-month high of 52.8, Spain’s 27-month high of 53.5, a 16-month Czech PMI high of 47.0, Italy’s 25-month high of 51.9, France’s 22-month high of 52.4, and Germany’s 19-month high of 51.0. Note that readings that were higher but still below 50 merely reflect slower rates of deterioration, whereas PMIs above 50 signal positive growth.

Japan reported its final first-quarter GDP figures, showing an overall contraction of 2.2% at an annualized rate. Quarterly growth during the second half of 2019 had been flat in the third quarter and then down 7.2% annualized in the final quarter. So even before the second quarter, which will be weaker than 1Q, Japan was in a technical recession, and year-on-year growth between the first quarters of 2019 and 2020 was negative 1.7%. Japan’s GDP price deflator edged up just 0.1% in the first quarter and posted a smaller on-year advance of 0.9%.

Swiss consumer prices slid 0.2% in July, yielding a smaller-than-forecast 0.9% year-on-year decline. Core CPI deflation amounted to -0.4%.

CPI inflation in Indonesia fell 0.4 percentage points to a twenty year 2 month low of 1.54%. Core CPI inflation dropped to 2.1%.

Business confidence rose to a 5-month high of 42.9 in Thailand and to 4-month high in Mexico‘s manufacturing sector.

Austrian unemployment dropped in July to a 5-month low of 9.2%.

Investors await the U.S. manufacturing PMI as well as data on U.S. motor vehicle sales and construction spending.

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



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