Broad Decline in Equities and Strengthening Moves in the Yen and Dollar

September 21, 2020

Japanese markets were closed today for Respect for the Aged Day and will remain so Tuesday for the Autumnal Equinox holiday.

Elsewhere in the Pacific Rim, stock markets have dropped 2.3% in India, 2.1% in Hong Kong, 1.2% in Indonesia, and 0.7% in Australia and New Zealand. Selling intensified in Europe, where equities so far today show losses of 3.4% in Spain, 3.3% in the U.K., 3.2% in Italy, and 2.9% in both France and Germany.

The chief factor rattling investor confidence has been a widespread climb in the pace of new Covid-19 cases around the world. In Europe, which got the virus before the United States, a second wave seems under way and has elicited new lockdown restrictions in several countries. The U.S. death count has moved above 200k, and the total case count is fast approaching one million.

Fed Chairman Powell and U.S. Secretary of Treasury Mnuchin will be testifying in Congress this week about how to respond to the recession. Many central banks have scheduled monetary policy reviews this week.

The death of U.S. Supreme Court Justice Ginsburg has injected a new uncertainty into the election campaign and seemingly has tilted the reelection odds of President Trump and the Republicans more favorably by distracting the campaign away from being primarily a referendum on the U.S. handling of pandemic and accompanying recession. U.S. stock futures are sharply lower.

As before, the latest wave of risk aversion has favored the dollar and yen. The U.S. currency dropped 0.4% overnight against the yen but shows gains of 1.6% versus the peso, 0.7% relative to the kiwi, 0.6% against sterling, 0.5% vis-a-vis the euro, 0.4% versus the Swiss franc, 0.3% against the loonie and Australian dollar, and 0.2% versus the yuan. The Turkish lira fell to another record low, and the Russian ruble is at a 5-month low.

Commodities have taken a hit. The prices of West Texas Intermediate crude oil and Comex gold are down 2.2% and 1.3%.

The ten-year U.S. Treasury yield slipped three basis points, while its German and British counterparts are two basis points lower.

As is often the case on Monday, the flow of data has been inconsequential from both a quantitative and qualitative standpoint.

CPI inflation in Hong Kong, which was below zero percent at -2.3% in July for the first time in 41 months, stayed negative in August but a much lesser -0.4% degree.

Retail price inflation in the Philippines edged down 0.1 percentage point to a 2-month low of 1.2% in July.

Switzerland last quarter experienced its smallest quarterly current account surplus (CHF 9.878 billion) since the summer of 2017. Swiss M3 money growth accelerated 0.1 percentage point to a 12-month 2.5% rate of increase in August.

The Greek current account deficit narrowed 38% on month to EUR 874 million in July, which was 7-month low.

Hungary’s current account swung from a EUR 466 million surplus in the second quarter of 2019 to a EUR 850 million deficit in the second quarter of 2020.

Belgian consumer confidence rose ten index points to a 6-month high of -16 in September.

Polish retail sales, which had recorded their first on-year increase in five months during July, were 0.4% lower in August than a year earlier.

The British Rightmove house price index was 5.0% higher than a year earlier in September, having accelerated from 12-month increases of 4.6% in August and 3.7% in July. September’s advance was the most in 51 months.

Monetary officials at the People’s Bank of China once again made no changes to the 1-year and 5-year Loan Prime Rates of 3.85% and 4.65%, respectively. The last modifications occurred in April, when the 1-year LPR was reduced by 20 basis points and the 5-year LPR was cut by 10 bps. The rate level is reviews on a monthly basis.

The Chicago Fed National Activity Index will be reported later today.

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


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