Some Encouraging U.S.-Sino Trade News Fans Investor Sentiment Further

August 25, 2020

Equity markets had rallied strongly on Monday and then received a further lift overnight from the news that U.S. and Chinese trade negotiators reported progress and reaffirmed that the Phase I trade deal remains effective.

In other overnight developments,

  • The Republican Party National Convention kicked off with loads of fear-mongering directed at the Democratic Party intentions and predictable lies about their own record over the past four years.
  • The contraction of Germany’s economy was revised somewhat lower and accompanied by upbeat findings in the IFO Institute’s August business climate index. IFO officials concluded that Germany is on the road to recovery, as the index rose to a 6-month high.
  • The dollar and yen fell against other industrial economy currencies, but the struggling Turkish lira touched another record low.
  • The governments of China and the United States remain far apart on a number of other contentious matters like intellectual property rights and national security.
  • 24-hour changes in global and U.S. coronavirus cases and deaths slowed somewhat.

Prior to the release of today’s round of U.S. data,

  • The dollar was trading 0.5% lower against the peso and sterling and down 0.2% relative to the euro, loonie, Swiss franc, Australian dollar and kiwi. But it was up 0.5% against the yen and 0.2% versus the yuan.
  • Ten-year sovereign debt yields had advanced overnight by five basis points in Germany, three bps in the U.K. and United States, and a basis point in Japan.
  • Stock markets rose in the Pacific Rim by 1.6% in South Korea, 1.4% in Japan, 1.2% in Indonesia, 0.9% in Taiwan, 0.8% in Singapore, 0.7% in New Zealand and 0.5% in Australia. Share prices in Europe are up 1.0% in Spain, 0.8% in Italy and 0.7% in Germany.
  • West Texas Intermediate crude oil‘s price was up 0.4%, but gold had dipped 0.2%.

German real GDP plunged 9.7% on quarter in 2Q. That’s a revision from a 10.0% drop reported initially and resulted in a revised on-year decline of 11.3%. GDP had been flat in the final quarter of 2019 and posted a 2.0% decrease in the first quarter of 2020. Quarterly contractions of key components of aggregate demand last quarter amounted to 10.9% in personal consumption, 19.6% in business investment on machinery and equipment, and 20.3% for exports. Government expenditures, by contrast, went up 1.5%, and inventory changes mitigated the slide in real GDP by 0.3 percentage points.

IFO’s German business climate index rose 2.2 points to a 6-month high of 92.6 in August, having bottomed at 74.4 in April. Current conditions climbed 3.4 points to a 5-month high of 87.9, and business expectations went up 0.8 points to a 21-month high of 97.5. The manufacturing, services, trade, and construction sectors all improved during August.

Spanish producer prices jumped 1.8% on month, shaving their on-year rate of decline to 4.8% in July from 5.9% in June and 8.8% in May. Energy was the primary driver behind reduced deflation.

The 12-month decline of Swedish producer prices lengthened to an 86-month high of 4.9% last month. Swedish producer prices previously had risen 1.3% between December 2018 and the end of last year.

Austrian industrial production continued to revive from loosened lockdown restrictions in June, climbing 5.0% on month. There still was a 10.3% drop from a year earlier. In April, industrial production had been 21.3% lower than a year earlier.

The monthly distributive trades index compiled the Confederation of British Industries surprised analysts, who’d projected further improvement, instead swung to minus 6 in August from a reading of +4 in July, -37 in June and a low point of -55 in April.

South Africa’s leading business cycle indicator jumped 2.7% on month in June, its largest advance since 2009. To put that in perspective, however, the index had fallen previously by 0.8% in March, 6.8% in April and 4.9% in May.

A slew of U.S. indicators are about to get released: the Case-Shiller and FHFA house price indices, the Richmond Fed manufacturing index, new home sales, and the Conference Board’s consumer confidence measure.

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

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