Rising Covid Cases, Growth Outlook Concerns, Supreme Court Nomination Fight, and U.S.-China Tensions

September 22, 2020

The pace of new Covid-19 cases has risen in many countries. A U.S. increase above 40k in the past 24 hours is well above a safe level heading into the flu season.

Fed Chairman Powell said America has a long way to go in its economic recovery from spring lockdowns and that a full comeback will only be possible when there is consumer confidence that social gathering is again safe.

Bank of England Governor Bailey warned that accelerating virus cases in the U.K. will complicate that economy’s recovery. Prime Minister Johnson has little choice but to tighten restrictions against social gathering.

Deputy Governor DeBelle of the Reserve Bank of Australia revealed that all options are being considered by the central bank to support growth and financial market functionality, including foreign exchange intervention. He opined that Aussie dollar depreciation would be helpful and welcomed.

A statement released by the Swedish Riksbank after officials voted to leave the 7-day repo rate unchanged at zero percent proclaimed, “The Swedish economy has now begun to recover after having fallen sharply in the spring. But the way back is long and fraught with uncertainty. To provide support to economic developments and help inflation to rise towards the target, the Riksbank is continuing its asset purchases and offering liquidity in all the programs launched so far this year.” Projected inflation in 2021 and 2022 was revised slightly downward, and a rise of the repo rate is not anticipated before late 2023 at the earliest. The repo rate had been negative from February 2015 until January 2020, bottoming at -0.50%, prior to a pair of 25-basis point hikes restored the 0% level.

It appears increasingly that President Trump and the Republican-controlled senate have the power and will to install another highly conservative justice on the supreme court this term. The impact of that plan on the election result remains to be seen. More immediate has been an increase in investor anxiety that it has caused.

There are indications that Beijing officials may not accept the proposal for Oracle to take over Tik Tok’s U.S. operations.

Having risen to its strongest trade-weighted level since the first week of August, the dollar overnight slipped on balance by 0.5% against the yuan, 0.2% relative to the yen, sterling and peso, and 0.1% vis-a-vis the loonie and Swiss franc. The dollar is unchanged on net versus the euro, Australian dollar, and kiwi.

Japan’s stock market remained closed today for the Autumnal Equinox holiday.

In other equity action in the Pacific Rim, share prices lost 2.4% in South Korea, 1.3% in Indonesia, 1.2% in Taiwan, 1.3% in China, 1.0% in Hong Kong, 0.7% in Australia and 0.8% in India. In Europe, however, stocks so far have rebounded 1.3% in Italy, 1.1% in Germany, 0.6% in France and 0.4% in Great Britain.

The price of WTI  oil is 0.7% firmer, while that of gold has slipped 0.3%.

Ten-year German bund and British gilt yields are up 2 and 3 basis points in contrast to a 1-basis point dip in the 10-year U.S. Treasury yield.

Consumer confidence improved this month to 2-month highs in Turkey and The Netherlands but fell back to a 4-month low in Denmark.

September’s monthly CBI survey of British industrial trends reflects slippage from a 5-month high in August to a 3-month low, and the diffusion index for orders, -48, remains depressed.

South Korean on-year producer price change was in the red for a sixth straight month, but the 0.5% rate of deflation in August was the smallest decline since March.

Hong Kong’s current account, which had swung into deficit in the first quarter of 2020, returned to surplus last quarter, reaching HKD 60.53 billion, which is equivalent to 9.5% of GDP and the widest imbalance since an 11-year high in the third quarter of 2019.

Finland’s unemployment rate held steady at 7.7% last month but compared with 6.1% a year earlier.

Dutch household consumption in July was 6.2% lower than a year earlier. That was the fifth straight on-year decline but the smallest decrease in that streak.

Still ahead: the release of of U.S. existing home sales, Euroland consumer confidence, and more congressional testimony from Fed Chairman Powell.

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

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