Equities Still Well Bid for the Most Part

September 2, 2020

Fed Governor Brainard’s call for more fiscal and monetary stimulus encouraged the risk appetite of investors overnight especially in European trading. Ten-year German bund and British gilt yields fell by 3 basis points each, and stock markets have risen by 2.3% in France and Germany, 2.2% in Italy, 1.7% in Switzerland, and 1.6% in Great Britain.

Pacific Rim stock markets closed up 1.8% in Australia, 1.0% in New Zealand, 0.6% in South Korea, and 0.5% in India and Japan but lost 0.3% in Hong Kong and 0.2% in China.

The dollar climbed 0.4% overnight against the euro and Australian dollar, 0.2% relative to the Japanese yen, and 0.1% versus the Swiss franc, Chinese yuan, Mexican peso and British pound.

Gold settled back 0.4%, but WTI oil rose 0.5%.

German retail sales volume failed to rebound in July as was anticipated. A 13.2% recovery in May has now been followed by back-to-back declines of 1.9% in June and 0.9% in July. July’s level was less than 1% above the pre-lockdown February level.

A greater-than-expected 0.6% increase in Euroland producer prices during July reflected a 2.1% advance in the energy component. Non-energy producer prices were unchanged on month and 0.4% below their year-earlier level.

The number of unemployed workers in Spain went up by a greater-than-forecast 29.8 thousand in August.

Over the 12 months through July, producer prices fell 0.75% in Romania but climbed 3.4% (a 3-month high) in Hungary.

Britain’s Nationwide house price index rose 2.0% on month in August (four times more than expected). Their 3.7% 12-month rate of increase after 1.5% in the year to July represents a 4-month high.

British shop prices were 1.6% lower than a year earlier in July, marking the the fifth straight drop of more than 1.0% in a row.

The Australian economy, which had been one of the very few to avoid the Great Recession, contracted by a record 7.0% in the second quarter, resulting in a GDP slide from a year earlier of 6.3%. Household spending, imports, and business investment dropped 12.1%, 12.9%, and 4.9% last quarter. GDP in the first quarter had slipped 0.3% on quarter but risen 1.6% on year.

New Zealand’s terms of trade (export/import price ratio) jumped 2.5% in the second quarter due mainly to a surprising 2.4% rise in export prices.

Reflecting a very stimulative BOJ policy stance, on-year growth in Japan’s monetary base has accelerated to 5.8% in July-August from 3.6% in the first half of 2020 and all of 2019.

South Korean CPI inflation accelerated to a 5-month high in August, but the level was merely 0.7%. Moreover, core CPI inflation stayed at 0.4% in the latest months.

U.S. motor vehicle sales last month were 4.8% greater than in July. Mortgage applications last week dropped another 2.0% despite very low interest rates.

The Central Bank of Chile’s policy interest rate was maintained at 0.50% following the latest review of monetary policy. The vote was unanimous, and a statement from officials affirmed that an “extended period of time” at the present very accommodative stance will likely be needed. The key rate had been slashed in mid-March by 75 basis points and two weeks later by a further 50 bps.

Investors await several U.S. releases later today: factory orders, the ADP estimate of private sector job growth in August, and the NY regional PMI known as the NAPM index. Even more significantly, the Fed Beige Book of U.S. regional economic conditions gets published this afternoon. Meanwhile, Canada releases quarterly productivity and unit labor costs today as well.

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


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