Dollar and Share Prices Mixed

August 12, 2020

The dollar rose overnight by 0.6% against the kiwi, 0.4% versus the Japanese yen and 0.2% relative to sterling and the Australian dollar but also fell 0.3% against the euro, 0.4% versus the Swiss franc and 0.1% vis-a-vis the loonie.

Share prices dropped 1.2% in New Zealand, 0.9% in Taiwan and 0.6% in China, advanced 0.8% in Singapore and Indonesia, 0.6% in South Korea and 0.4% in Japan, and are mostly higher so far in European markets.

After a substantial drop yesterday, the price of gold has fallen by a further 0.7% on balance so far today. WTI oil is 1.6% pricier, however.

Ten-year sovereign debt yields rose 5 basis points in the United States, Germany and Great Britain and by one basis point in Japan.

In general news, Joe Biden named California Senator Kamala Harris as his VP running mate. Investors continue to hold onto the bet that Covid-19 vaccines will be developed and available for wide use sooner rather than later. Such a belief reduces the likelihood of extra fiscal stimulus in the United States, so there will be a double-whammy to confidence if current optimism proves excessive. Meanwhile, another 7000 deaths have been attributed to the virus over the past 24 hours, and 22.5% of those were in the United States.

In central bank news, New Zealand monetary officials left the Reserve Bank of New Zealands Official Cash Rate (OCR) unchanged at 0.25% but expanded quantitative stimulus. The Large-Scale Asset Purchase program was expanded by NZD 100 billion, and the Monetary Policy Committee also explored that they are preparing to unveil if needed other stimulus tools including a negative OCR. Such has been at 0.25% since being slashed by a total of 50 basis points in two increments last March.

British real GDP tumbled 20.4% (not annualized) in the second quarter, which constitutes the weakest quarter since at least 1955. Personal consumption and business investment fell over 20%, and government spending dropped 14%. However, imports fell more sharply than exports, which had a somewhat uplifting effect on growth. GDP was 21.7% lower than a year earlier having not posted a positive quarter since last summer. Monthly GDP recovered in both May and June but was still 16.8% less than in June 2019.

Other released British data revealed

  • Industrial production fell on year by 12.5% in June and 18.8% in the second quarter despite a month-on-month rise of 9.3% in June.
  • Factory output rose 11.0% on month but remained 14.6% weaker than in June 2019.
  • Construction output in June increased on month but was 24.8% below the year-earlier level.
  • Construction orders plunged 51.1% on quarter in 2Q and were a record 45% down on year.
  • The balance of goods and services trade posted a third consecutive surplus in June. The GBP 5.336 surplus was roughly 30% narrower than in May, with import growth of 21.1% outpacing the 13.1% monthly rise in exports. The merchandise trade deficit almost doubled to GBP 5.12 billion in June from GBP 2.81 billion in May.
  • Labor productivity dropped 2.5% on quarter and 0.6% on year in the second quarter.

In spite of monthly increases in Euroland industrial production of 12.3% in May and 9.1% in June, there was an average 16% slide on average between the first and second quarters. June’s level of industrial production remained 12.3% weaker than a year earlier.

Australian wage cost inflation fell 0.3 percentage points to a record low of 1.8% in the second quarter. And according to the Westpac index of Australian consumer confidence, sentiment deteriorated 9.5% further in August after a 6.1% drop in July. May and June had seen a revival on the relaxation of lockdown restrictions.

An 8.0% rebound in Brazilian retail sales in June left such only 0.5% above their year-earlier level.

South African retail sales rose 6.4% but fell by a larger-than-expected 7.5% on year in June. However, the Sacci index of South African business confidence rose 1.4 index points to a 4-month high of 82.8. That’s still well below a score of 92.7 in February but well above the 35-year low of 71.1 in April.

Italian consumer prices in July were 0.4% lower than a year earlier, marking the most negative such have been since mid-2016. Portuguese CPI inflation remained steady at +0.1% in July.

U.S. CPI inflation, in contrast, accelerated more than expected to a 4-month high of 1.0% in July. A large impetus for higher inflation came from food costs, but core inflation of 1.6% matched the 0.4 percentage point increase of overall CPI inflation. The price of gasoline advanced 5.6% on month, and the overall energy index went up 2.5% on month.

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

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