Mixed Signals this Friday
September 18, 2020
China’s Shanghai Composite equity index jumped 2.1%, but share prices fell 1.4% in New Zealand and 0.3% in Australia and India. Japan’s Nikkei rose only 0.2%, and Spanish stocks have so far dropped 1.2% on the day.
The dollar climbed to another record high against the Turkish lira and shows a year-to-date advance of more than 20%. But the U.S. currency experienced its softest week versus China’s yuan in ten months and reached a 17-month low relative to the New Zealand dollar. In overnight trading, the dollar rose 0.6% against sterling while losing 0.4% versus the yen. Net movements were minimal relative to the euro, Swiss franc, Aussie dollar and Mexican peso.
Ten-year sovereign debt yields are down two basis points in the United States, Germany and Great Britain. Japan’s 10-year JGB is yielding zero percent today.
The price of WTI oil fell 0.5%, while that of gold rose 0.5%.
The global Covid-19 case count crossed above 30 million people, and the U.S. death count edged closer to 200k. President Trump doubled down on disparaging the usefulness of wearing a mask to ward off the illness.
Central bank reviews of monetary policies yielded varied results:
- The Central Bank of Azerbaijan engineered the fourth interest rate cut of 2020, lowering the cost of money by 25 basis points to 6.5%. Previous reductions were made in January, June and July. The current cycle of easing started from a high of 15.0% back in February 18 and has been justified by slowing inflation, which this year got fresh impetus from the global coronavirus pandemic.
- The South African Reserve Bank in a narrowly split vote elected not to cut its interest rate further even though real GDP in that country plunged 51% last quarter although officials in a released statement asserted that “Barring risks, inflation is expected to be well contained over the medium-term, remaining below but close to the target midpoint in 2021 and 2022.” The central bank rate had previously been reduced by 25 basis points in January, 100 bps each in March and April, 50 bps in May and 25 bps in July. Two of the five policymakers had preferred an additional cut of 25 basis points at this time.
- The Central Bank of Russia‘s Board of Directors had authorized interest rate cuts in February, April, June, and July totaling 200 basis points to 4.25% but this month decided not to ease further. A released statement, however, doesn’t rule out an additional rate reduction in the future. While inflation recently exceeded expectations, the balance of price risks looking to the medium term is skewed to the downside.
Investors have learned both upside surprises like a 0.8% advance in British retail sales last month and downside ones like a 53% quarter-on-quarter surge in the U.S. current account gap.
To be sure the 0.8% monthly rise in British retail sales volume was considerably smaller than the rebounds in each of the previous three months. But it surpassed expectations and resulted in higher sales than before the pandemic hit. A 2.8% increase from August 2019 was the greatest on-year advance in ten months.
Analysts were anticipating a bigger U.S. current account deficit in 2Q than 1Q, but its $170.5 billion size surpassed their consensus by 8%. From deficits of $104,3 billion in the final quarter of 2019 and $111.5 billion in the first quarter of 2020, the imbalance leaped to $170.541 billion, its widest amount since the third quarter of 2008. Aside from the known $38.4 rise in the merchandise trade deficit, the current account deficit’s upsurge also reflected a $10.8 billion shrinkage from the services trade surplus and $22.8 billion less of net investment income. As a percentage of GDP, the current account widened from a manageable 2.1% in the first quarter to a less sustainable 3.5% in the second quarter.
Euroland also reported a weaker current account position, but at least such is in surplus. The seasonally adjusted surplus slipped to EUR 16.6 billion in July from 20.7 billion euros in June. The unadjusted July surplus of EUR 25.5 billion was 26.3% smaller than the July 2019 surplus.
Another sign of a deceleration in Europe’s recovery from recession could be seen today in Italian industrial orders, which following jumps of 43.7% in May and 23.7% in June only rose 3.7% in July and remained 7.2% lower than the level of orders in July 2019.
Canadian retail sales growth slowed in July to a monthly advance of 0.6%. Analysts were predicting a 1.0% advance following June’s 23.7% upsurge, and the 12-month rate of increase narrowed to 2.7% from 3.8% in the prior month.
Japanese consumer price inflation dipped 0.1 percentage point to 0.3% in August, and consistent with the Bank of Japan’s prediction yesterday, core CPI moved south of zero percent to -0.4% from 0% in both June and July.
Over the 12 months through August, producer prices fell 5.0% in Portugal and by 1.2% in Poland.
Germany also reported PPI deflation, but the on-year decline of 1.2% in August was the smallest drop since -0.8% in March. All of the shift from a 1.7% year-on-year slide in July was attributable to a lessening drag from energy. Non-energy PPI deflation of -0.4% matched the outcomes in June and July.
Still to come: U. Michigan/Reuters index of U.S. consumer sentiment and Conference Board’s U.S. index of leading economic indicators.
Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British retail sales, Central Bank of Azerbaijan, Central Bank of Russia, South African Reserve Bank, U.S. current account