Sovereign Debt Yields Lower and Dollar Modestly Higher

August 4, 2020

Ten-year sovereign debt yields fell overnight by two basis points in the U.S. and Germany and by a basis point in the U.K. and Japan.

Stock markets started strong in Asia, but the performance subsequently turned mixed. Share prices close up 2.0% in Hong Kong and India, 1.9% in Australia, 1.7% in Japan, 1.6% in Taiwan, 1.4% in Indonesia, and 1.2% in Singapore. The Swiss and German markets are currently down 0.6% and 0.4%, whereas share prices show gains of 0.4% in Spain and 0.2% in Great Britain.

The dollar appreciated overnight by 0.4% against the peso and sterling, 0.2% relative to the yen and loonie, and 0.1% vis-a-vis the euro, Australian dollar and kiwi.

The price of West Texas Intermediate oil fell back 1.8%. That of gold continues to hover not far beneath the $2000 per ounce level.

Several places both in the United States and elsewhere have been forced to roll back pandemic reopenings. Global cases are near to 18.5 million, and attributed deaths are just shy of 7 million. Talk about vaccine development remains upbeat. The New York area is bracing for a strong tropical storm later today.

In the United States, some progress in fiscal stimulus talks has been reported, and Washington state, Missouri, Michigan and Kansas are holding election primaries today.

The Reserve Bank of Australia Board as expected left the Official Cash Rate unchanged at 0.25% amid continuing reluctance to take such into negative territory. Two 25-basis point cuts were made in March, and three others preceded that in 2019. Governor Lowe released a statement that acknowledges Australia’s biggest contraction since the 1930s but also identifies a nascent uneven and bumpy recovery now underway. Policy is focused on quantitative monetary support:

The yield on 3-year Australian Government Securities (AGS) has been consistent with the target of around 25 basis points. The yield has, however, been a little higher than 25 basis points over recent weeks. Given this, tomorrow the Bank will purchase AGS in the secondary market to ensure that the yield on 3-year bonds remains consistent with the target. Further purchases will be undertaken as necessary. The yield target will remain in place until progress is being made towards the goals for full employment and inflation.

Australian retail sales rose 2.7% in June, which was less than in May and still left sales down 3.4% for the second quarter as a whole. Australia’s trade surplus widened to a 3-month high in June, bringing the first half surplus to A$ 42.63 billion, 29% greater than a year earlier.

Euroland producer prices rose 0.7% on month and fell by a diminishing 3.7% on year. Lessening PPI deflation reflected a 3.1% monthly jump in the energy component. All other PPI items collectively were unchanged from May levels.

Romanian producer prices recorded a smaller year-on-year drop in June of 0.5% after a fall of 2.0% in the year to May. PPI inflation in Hungary accelerated to a 2-month high of 3.1% in June.

Turksh PPI inflation increased to a 4-month high of 8.3% in July, which is still far beneath the September 2018 peak of 46.2%. Turkish consumer prices climbed 0.6% on month in June and eased from a year-on-year standpoint by 0.9 percentage point to 11.76%. Turkey’s manufacturing purchasing managers index printed at a 113-month high of 56.9 in July versus a low in April of 33.4.

South Korean CPI inflation of 0.3% in July was the highest since 1.0% posted last March.

Tokyo CPI inflation accelerated in July to 0.6% overall and 0.4% excluding perishable food.

Reflecting the Bank of Japan’s highly expansive monetary policy, on-year growth in the  Japanese monetary base accelerated to 9.8% in July from 4.1% in the second quarter and 3.1% in 1Q. The central bank’s balance sheet grew a bit over 16% during the first seven months of 2020.

The Irish manufacturing purchasing managers index leaped 6.3 points in July to a 23-month high of 57.3.

Due to fiscal stimulus applied against France‘s pandemic, that country’s government deficit was 61% larger in the first half of 2020 than a year earlier.

Swiss consumer confidence rebounded to a two-quarter high of -12 in the third quarter after plunging to -39.3 in the spring.

The number of unemployed Spanish workers fell in July for the first time since April. Spain also experienced Euroland’s highest factory purchasing managers index during July (53.2).

U.S. data getting released today are the New York regional PMI survey (NAPM), factory orders, and the IBD/TIPP Optimism index. Brazilian monetary policy is being reviewed amid expectations that the result will be a decision to lower the Selic interest rate.

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


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