Dollar Ending Down Week on an Up Note

August 21, 2020

Former VP Joseph Biden’s presidential nomination acceptance speech capping the Democratic Party National Convention was well-received, inspirational and with no major gaffes. The Republican Party National Convention next week runs from Monday through Thursday.

Preliminary purchasing manager August surveys reveal a loss of growth momentum in Euroland, stalled progress in Japan, a return to sub-50 territory in Australia, but Britain’s best readings since the autumn of 2013.

Overnight gains in the dollar of 0.8% against sterling, 0.7% versus the euro, 0.5% relative to the Swiss franc, 0.4% vis-a-vis the Canadian dollar, 0.3% against the kiwi, Aussie dollar and Mexican peso were not enough to erase the U.S. currency’s losses earlier this week.

Ten-year U.S. Treasury, German bund and British gilt yields each dropped two basis points.

The prices of gold and WTI oil are down 0.9% and 1.3%.

Stock markets in the Pacific Rim closed mostly higher, including gains of 2.0% in Taiwan, 1.5% in New Zealand and 1.3% in both Hong Kong and South Korea. Share prices in Japan and China rose by a lesser 0.2% and 0.5%, and Continental European markets reacted adversely after the report of disappointing August purchasing manager surveys.

To wit, Euroland’s composite PMI, which had revived from a reading of 21.7 in April to 57.8 by July, settled back to a 2-month low of 51.7 in August. Manufacturing and services each experienced slower growth despite faster factory output expansion. Accelerated rates of job loss was a particularly worrisome development, making the chances of a V-shaped business cycle all the more improbable. France’s manufacturing PMI score slid back below the 50 level that divides positive growth from contraction. Total, manufacturing, and service sector readings were lower than analysts were expecting.

In contrast, the British composite purchasing managers index climbed another 3.3 points to 60.3, its highest point since October 2013 and 46.5 index points above the trough in April. The readings for manufacturing and services were the best in 30 and 72 months, respectively.

In Japan, the preliminary estimated composite PMI score of 44.9 merely matched July’s 5-month high and was 5.1 points below the neutral 50 level. Manufacturing (44.7) edged up to a 5-month high, but services dipped 0.4 points to a 2-month low.

A composite Australian PMI compiled by Commonwealth Bank of Australia fell 9.0 whole points to 48.8, a 3-month low. That deterioration was concentrated in service-sector activities.

Japanese CPI inflation ticked up 0.2 percentage points to 0.3% in July, but the underlying core element of the index was flat both compared to June and July 2019.

British retail sales volume climbed 3.6% in July following super-sized rebounds of 12.3% in May and 13.9% in June. Having contracted in five of the six previous months including an 18% tumble in April, sales were only 1.4% higher in July than a year earlier.

In other British data reported this Friday, consumer confidence in August merely matched July’s depressed -27 reading, which was only 7 points weaker than the recent lows in March and April. The CBI’s monthly industrial trends survey revealed a smaller-than-forecast 2-point increase in the orders index to -44 in August. And public-sector net borrowing in July showed a deficit of GBP 25.944 billion (compared to a GBP 2.3 billion surplus in the July 2019).

Measures of consumer confidence reported in Denmark, Belgium and Turkey reflect concern about future outbreaks of the Covid-19 pandemic. Danish consumer confidence sank 2.6 points to a 3-month low of -5.5 in August, while Belgian consumer sentiment dropped six points to a 4-month low of -26. Turkey’s 3-month low of 59.6 was down from 60.9 in July and 62.6 in June.

South Korean producer prices in July recorded the smallest on-year drop (0.8%) since March, but an 8.4% on-year drop in Irish wholesale prices was the largest decline so far this year.

Real GDP in Peru suffered record contractions in the second quarter of 27.2% versus 1Q and 30.2% from a year earlier.

Spain’s trade balance was in surplus for a second straight month in June. Its size of EUR 1.48 billion contrasted with a EUR 1.53 billion deficit a year earlier, ans a 20.2% tumble in imports was more than twice the drop in exports.

Mexican retail sales jumped 7.8% in June but remained 16.6% fewer than sales a year earlier.

Likewise, a record monthly advance of 20.7% in U.S. existing home sales during June was still not large enough to prevent another negative 12-month change. Sales were 11.3% below the June 2019 level.

A record 23.7% leap in Canadian retail sales during June catapulted the 12-month change back to positive territory (+3.8%) for the first time since February but still yielded an average 13.3% decline between the first and second quarters.

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

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