Wednesday’s Bounce in U.S. Equities Appears Shortlived

September 10, 2020

Risk aversion is back in vogue. Share prices overnight plunged 5.0% in Indonesia and fell by 0.6% in Hong Kong and China. While India and Japan saw advances, stocks in Europe are down 0.6% in the U.K., 0.5% in Switzerland, and 0.2% in France. U.S. futures are also lower.

The price of WTI oil fell 1.5%, and that of gold edged up 0.1%.

The dollar advanced 0.4% against the kiwi, 0.3% relative to sterling and 0.2% vis-a-vis the Aussie dollar and Mexican peso but fell by 0.3% versus the Swiss franc and euro overnight. The yen and loonie are steady.

10-year German bund and British gilt yields rose 2 and 1 basis points overnight. Their U.S. and Japanese counterparts are steady.

The policy settings of the European Central Bank were not changed. Analysts had felt that if further easing is to come, a December timing is much more likely than now. Lagarde’s press conference starts shortly.

Officials at the Central Bank of Uzbekistan cut their refinancing rate by a full percentage point to 14.0%. Previously this year, the rate had also been reduced by 100 basis points in April. Inflation subsided in August to 11.7%, confirming the bank’s belief that such would fall and permitting today’s interest rate cut.

At Bank Negara Malaysia, the policy rate was left at 1.75%. Officials are counting on four earlier cuts this year between January and July and totaling 125 basis points to “continue to provide stimulus to the economy.” With inflation under zero percent, recovery in the services sector lagging, and overall recovery prospects still facing downside risks, analysts were leaning toward a likelihood of another 25-basis point cut now and were surprised that today’s released statement instead said the current stance is appropriate.

The National Bank of Serbia‘s policy rate was also left unchanged at a review today. This decision was expected and follows cuts of 50 basis points in March, 25 bps in April, and another 25-bp reduction to the current record low of 1.25% now. Monetary stimulus will be complemented by the government’s fiscal package, and the second-quarter contraction of 6.7% in GDP, although a record, was not as great as had been feared.

France and Italy released industrial production data today. Following back-to-back recoveries in French industrial production of 20% in May and 13% in June, the monthly 3.8% advance in July was less than forecast. In contrast, a 7.4% jump in Italian output was twice the size that had been forecast and trimmed the year-on-year decline to 8.0% in July from 13.9% in June and a record 43.4% back in April.

Many countries reported August consumer price data today. Although down 0.4% on month, Norwegian CPI inflation accelerated 0.4 percentage points to a 7-month high of 1.7%. In Ireland, consumer prices recorded their largest on-year drop, 1.0%, in a decade. Danish prices fell 0.4% on month and matched July’s on-year 0.5% increase. Sweden’s CPI dipped 0.1% on month but accelerated 0.3 percentage points to a 0.8% on-year advance. The Czech CPI was flat on month and edged down 0.1 percentage point to a 3.3% 12-month rate of increase. Portuguese consumer prices fell on month for a third straight month, this time by 0.3%, and were unchanged from their level a year earlier. Romania’s CPI dipped 0.1% on month and slowed 0.1 percentage point to a year-on-year 2.7% rise.

Norwegian producer prices climbed 1.2% on month in August, reducing their year-on-year decline to 12.1% from 13.3% in July and 17.5% in May.

U.S. producer prices again posted a larger-than-forecast monthly increase, 0.3%, halving the 12-month rate of decline to 0.2%. Core PPI inflation doubled to 0.6%.

U.S. new jobless insurance claims were fewer than 1 million last week as predicted, but instead of declining from the prior week remained unchanged at 884k. Adding to that disappointment, continuing claims in the previous week of August 29 went up by 93k to 13.345 million.

Following declines of 7.6% in June and 12.9% in the second quarter, core domestic machinery orders in Japan bounced 6.3% in July but were still 16.2% lower than a year earlier. Export orders for machinery had tumbled 32.1% last quarter but rebounded 13% in July.

In July, unemployment rose in both Greece and Turkey to respective 16- and 4-month highs of 18.3% and 13.4%.

South African factory output rose 7.6% on month in July but posted a 10.6% year-on-year drop in the month. Investors also learned that South Africa’s current account had swung back into the red last quarter with a deficit of ZAR 104 billion from a surplus in 1Q of ZAR 63 billion. The deficit in the second quarter of 2019 was much larger at ZAR 209 billion.

Great Britain’s Royal Institute of Chartered Surveyors’ monthly house price balance leaped in August to a 54-month highof 44% from +13% in July and -32% as recently as May.

Coronavirus cases and deaths were higher in the most recent 24 hours than the previous day in both the world and United States. Notably, U.S. deaths exceeded 1000 in the latest period. And new controversy surrounding President Trump’s handling of the pandemic has been stirred by revelations in Bob Woodward’s latest book that as early as February Trump knew that Covid was much more contagious and deadly than the common flu but intentionally underplayed the risk.

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

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