No U.S. Fiscal Package Yet as New Jobless Claims Exceed 1 Million for 20th Consecutive Week

August 6, 2020

Congressional talks on an additional fiscal stimulus reportedly remain far apart. The hope has been to secure agreement by tomorrow. Global Covid-19 cases just rose above the 19 million mark, and the U.S. total is closing in fast upon 5 million confirmed infections.

Although more than 200k less than forecast, new U.S. jobless insurance claims of 1.186 million last week surpassed 1 million for the 20th week in a row, and there were more than 16.6 million continuing claims made in the week of July 25th.

After mixed results in the Pacific Rim, stock markets in Europe turned risk averse, with losses there amounting to 1.8% in the U.K., 1.4% in Spain and Italy, 1.2% in France, and 0.8% in Germany. The markets in Japan and Hong Kong had closed down 0.4% and 0.7%, gains of 1.0% occurred in India, Indonesia, and Singapore.

The dollar has been narrowly mixed among its major relationships, but the U.S. currency remains around a 2-year trade-weighted low. The impressive appreciation in the price of gold is in unchartered territory. It rose another 1.0% to $2,070 pr ounce overnight. Oil’s price had risen initially after the Beirut explosion but is 0.9% softer today.

Ten-year German bund and British gilt yields fell 4 basis points, and the 10-year U.S. Treasury yield is 3 basis points lower.

Central bank interest rate decision were revealed in Brazil, India, and at the Bank of England.

The Brazilian Selic interest rate was sliced another 25 basis points as expected to 2.0%. This was its fifth reduction of 2020, following cuts of 25 basis points in February, 50 bps in March, and 75 basis points each in May and June. The rate has been lowered progressively since the final quarter of 2016 from a double digit peak. A released statement calls the environment for emerging economies like Brazil “challenging” and projects inflation below the 4% target into 2022. “The Copom believes that the current economic conditions continue to recommend an unusually strong monetary stimulus but it recognizes that, due to prudential and financial stability reasons, the remaining space for monetary policy stimulus, if it exists, should be small.”

India’s repo rate was also expected to be lowered by 25 basis points, but officials at the Reserve Bank of India instead left such unchanged at 4.0%. Two reductions earlier this year in March and May had totaled 115 basis points. The decision not to augment monetary support further at this time was justified according to a released statement by the recent rise of inflation above the targeted trajectory of 4.0%. At the same time, officials left the door open to more stimulus in the future: “Given the uncertainty surrounding the inflation outlook and taking into consideration the extremely weak state of the economy in the midst of an unprecedented shock from the ongoing pandemic, it is prudent to pause and remain watchful of incoming data as to how the outlook unravels.”

The Bank of England‘s policy interest rate by a unanimous 9-0 vote was left at 0.1%, which is the level since two cuts totaling 65 basis points this year in March. British CPI inflation is below the 2% target and considered likely to subside further before eventually returning to target in late 2021 or 2022. The economy still has plenty of spare capacity that needs to be reabsorbed. Before the interest rate is lifted, officials will need to see convincing evidence that the inflation target is being restored. Meanwhile, purchases of British sovereign debt and corporate bonds will continue. The GBP 745 billion limit on quantitative support wasn’t changed.

German industrial orders jumped 27.9% in June, nearly three times what analysts were forecasting, but remained 11.3% lower than a year earlier and also the level prior to business lockdowns early this year.

Czech industrial production rose 13.4% in June, which also was more than forecast, but it too was still more than 10% below its year-earlier level. Czech construction output dropped 2.0% on month and 11.5% on year in June, and Hungarian industrial production that month was 7.8% lower year-on-year. Irish industrial production, by contrast, flipped from a 12.7% on-year drop in May to a 5.1% 12-month rate of rise in June.

Greek unemployment continues to crest, rising to a 10-month high of 17.0% in May.

Real GDP in The Philippines plunged by a record 15.2% last quarter on top of a 5.1% slide in the first quarter of 2020. Year-on-year Filipino growth swung from 6.7% in the final quarter of 2019 to -16.5% two quarters later.

South Korea’s current account surplus in June of $6.88 billion represents an 8-month high, but the first-half surplus of $19.17 billion was at an 8-year low and embodies a 13.1% on-year decline in exports.

Consumer confidence in Indonesia rose for a second straight time to a 4-month high of 86.2 in July but remains very depressed compared to its end-2019 reading of 126.4.

Today’s assortment of published purchasing manager surveys revealed

  • A five-month high in Ireland’s service sector PMI to 51.9, which had bottomed at 13.4 in April.
  • A six-month high in the global composite PMI of 50.8 after a series of sub-50 readings including 47.8 in June.
  • A five-month high in Euroland’s construction PMI, which at 48.9 in July nevertheless conveys a moderate continuing rate of contraction in that sector. Among the three largest economies using the euro, the German construction PMI of 47.1 was also at a 5-month high, but the French score of 48.4 and Italian PMI of 51.0 were 2-month lows.
  • Britain’s construction PMI rose 2.8 points to a 57-month high of 58.1. Such hit a low in April of 8.2.

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


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