Modestly Softer Dollar

August 17, 2020

The dollar is 0.2% weaker against the yen, Swiss franc and Australian dollar and has also edged 0.1% lower versus the euro, yuan, and sterling. The price of gold rebounded 0.6%, while that of oil changed little as investors await this week’s OPEC meeting.

Markets are shut in India for Independence Day and South Korea for Liberation Day.

China’s stock market rallied 2.3% even though tensions remain elevated between Beijing and Washington. Share prices also closed up 1.8% in Taiwan and 2.1% in New Zealand but fell by 0.8% in Japan and Australia. European equities are mixed.

The 10-year U.S. Treasury yield is two basis points lower. Its counterparts in Japan, Germany and the U.K. are steady.

In an otherwise light day from a data release standpoint, Japan’s reports on 2Q GDP and revised June industrial production attest to that economy’s continuing difficulties.

Real GDP in Japan plummeted 7.8% on quarter (27.8% when expressed at an annualized rate). A 28.9% annualized plunge in personal consumption accounted for over half of the drop in GDP. Net exports exerted another huge drag, as exports dived 50% at an annualized rate compared to the import decline of just 2.1%. Non-residential and residential business investment also contracted. Last quarter’s deep implosion of GDP followed contractions of 7.0% in the final quarter of 2019 and 2.5% annualized in the first quarter of 2020, and the year-on-year drop in real GDP ballooned to 9.9%. The GDP price deflator was 1.5% greater than a year earlier, but nominal GDP sank 8.5%, the most in more than a decade.

Japanese industrial production growth in June rose for the first time since February. However, the size of that recovery was revised down by a third from 2.7% reported initially to 1.9%, and that left output 18.2% weaker than a year earlier. Industrial production between 1Q and 2Q slumped by 10.9% on average, resulting an a 19.8% on-year contraction. Capacity utilization was 23.9% lower in June than a year earlier, and the ratio of inventories to shipments had jumped 22.5%.

New Zealand’s service sector purchasing managers index in July matched June’s 5-month high of 54.3 and far exceeded the record low of 25.7 hit in April. But due to an uptick in new Covid-19 cases, New Zealand’s election has been moved back four weeks.

Thailand GDP fell 9.7% GDP on quarter and by 12.2% on year in the second quarter. The on-year contraction was the deepest since the Asian debt crisis in the late 1990s.

Singapore recorded its smallest trade surplus in July (SGD 3.3 billion) since April.

Britain’s Rightmove index showed a 4.6% rise in house prices, most in 50 months.

Danish producer prices in July were 2.1% lower than a year earlier. Czech producer prices that month were down just 0.1% year-on-year.

Norway’s NOK 1.765 billion trade deficit in July was the third red-ink result in a row, striking a contrast with the NOK 6.9 billion surplus experience one year earlier.

On the policy front, the People’s Bank of China left the 1-year prime lending rate unchanged at 2.95%. That’s the fourth straight no-changed decision in a row. U.S. efforts to negotiate a new fiscal stimulus remain stymied. The U.S. Democratic Party National Convention begins today but will be conducted mostly on line rather than in person.

Scheduled U.S. data releases today include the Empire State manufacturing index, the National Association of Home Builders monthly housing index, and Treasury-compiled capital flows.

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



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