Awaiting Speeches from Central Bankers

August 27, 2020

The third night of the Republican National Convention was mostly about law and order. The event concludes today with President Trump’s key speech to the party faithful. The message of “law and order” surfaced during the President Nixon’s 1968 successful run for president and has been a basic tenet of Republican campaigns ever since. Law and order and the public safety for which it stands means different things to different people. The bottom line is whether the public is protected satisfactorily from unnecessary death, want, and persecution, and whether the agreed rules apply consistently and fairly to everyone.

In several respects, America’s common defense in 2020 can hardly be described as normal. Hurricane Laura made landfall south of the Lake Charles resort area near the Louisiana-Texas border as a category 4 storm. Markets await details on property damages and casualties. Meanwhile, California continues to grapple with numerous wildfires that are causing immense property damage. The U.S. coronavirus case and death counts rose by 45.9k and 1,264 over the past 24 hours to eclipse the 6 million and 183.6k levels. America accounts for 24.6% of all global cases and 22.1% of the deaths thus far. Millions of workers still lack jobs, but congressional inaction is stripping away the social safety net. U.S.-Sino relations remain tense on several fronts, and Russia is again waging cyber warfare to influence America’s election in November.

Fed Chairman Powell and Bank of England Governor Bailey are two of the speakers scheduled for today’s opening on-line session of the Jackson Hole Central Bank Symposium. Powell is expected to unveil a new framework for targeting U.S. inflation over the medium term.

Ten-year sovereign debt yields fell overnight by 5 basis points in Spain, 4 bps in Germany, 2 bps in the U.K., and 1 basis point in Japan and the United States.

Hurricane Laura is seen as a potential market-mover of the price of oil. WTI is trading marginally above $43 per dollar. Gold slipped 0.3% overnight.

Equity markets are mostly lower, with declines of 1.1% in South Korea, 0.9% in Singapore, 0.8% in Hong Kong, 0.6% in Spain and Italy, 0.4% in Japan, 0.3% in France, 0.2% in Germany and 0.1% in Great Britain. Share prices rose 0.6% in China and India, however.

Second-quarter U.S. GDP growth was revised to a marginally smaller quarter-on-quarter contraction of 31.7% annualized. Most components of aggregate demand did not quite tumble as much as reported initially. Real GDP was 9.1% lower than in the second quarter of 2019. The personal consumption price deflator dropped 2.0% on quarter and rose 0.6% on year.

New U.S. jobless insurance claims last week totaled 1.006 million, almost exactly matching analyst expectations and a shade less than the 1.104 million total in the prior week. There were 14.5k continuing claims in the week of August 15.

Swiss real GDP fell 8.2% last quarter following a slide of 2.5% in the first quarter. Although not quite as big a quarterly contraction as feared, it still ranked as the deepest drop since at least 1980.

Australian business investment dropped 5.9% last quarter, only 70% as much as markets were expecting. Even so, investment was 11.5% less than a year earlier in the quarter.

Chinese corporate earnings in July was 19.6% greater than a year earlier, but the year-to-date total (ie January-July) was still 8.1% less than a year before. 2020 began with a horendous 38.3% on-year slump in January-February earnings.

Japan’s all industry index, a monthly proxy for GDP compiled from the supply side, rose 6.1% in June but was 10.3% lower compared to a year earlier. In the second quarter, the all industry index fell 10.7% versus 1Q and 14.0% compared to a year earlier.

French business sentiment among manufacturers rose to an August reading of 93 from 82 in July and April’s low of 68 but remained 5 points below March’s reading. Sentiment also improved this month in the services and retail sectors.

Italian industrial orders rose less sharply in June than May and was 11.8% below the year-earlier level.

Finnish consumer confidence dropped 3.5 points to a 3-month low in August. Swedish consumer confidence and business sentiment climbed to 5-month highs, in contrast, and Taiwanese consumer sentiment rose 1.9 points to a 4-month high.

Swedish retail sales in July advanced 1.9% on month and 4.8% on year. Norwegian retail sales that month likewise increased 0.6% on month and by a record 13.8% compared to the level in July 2019. Sweden’s January-July trade surplus of SEK 44.5 billion was 78% wider than a year earlier.

Mexico experienced a record high trade surplus in July of $5.80 billion ($7.1 billion greater than a year earlier) due to a 26.1% on-year slump in imports set against an export slide of 8.9%.

Canada’s current account deficit narrowed 35% to C$ 8.626 billion last quarter but was much closer to the C$ 8.915 billion deficit in the second quarter of 2019.

South African producer prices rose 1.2% on month in July, lifting the 12-month rate of increase to a 4-month high of 1.9%.

Malaysian producer prices rose 0.4% in July, resulting in the smallest on-year drop (3.5%) since March.

M3 money growth in the euro area continued to accelerate at the start of the current quarter, reaching 10.2% in July from a year earlier. But bank lending to households grew at a low and steady 3.0%.

As expected, officials at the Bank of Korea left that central bank’s record low interest rate unchanged at 0.50%. In a released statement, officials explained,

As economic growth is expected to be sluggish and inflationary pressures on the demand side are forecast to remain weak due to the COVID-19 pandemic, the Board will maintain its accommodative monetary policy stance. In this process it will thoroughly assess the severity of the coronavirus resurgence and its impact on the economy and financial markets, changes in financial stability, and the effects of the policy measures taken in response to the pandemic.

Earlier this year, the rate had been sliced by 50 basis points in March and a further 25 bps in May. Bank officials now anticipated a 1.3% contraction of real GDP this year, which would be the weakest year since the Asian debt crisis of 1998. CPI inflation is seen hovering in the mid-zero percent range.

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



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