Firmer Tone Wednesday in Equities and the Dollar

September 23, 2020

European share prices so far today show gains of 2.1% in the U.K., 1.6% in Spain, 1.5% in France, 1.4% in Germany and 1.1% in Italy. Equities also rebounded 2.4% in Australia, 1.1% in New Zealand, and 0.7% in Singapore but dipped 0.1% in Japan whose market was closed Monday and Tuesday for holidays. U.S. stocks are poised to advance at the open.

Overnight gains in the U.S. dollar amount to 0.9% against the Australian dollar and Mexican peso, 0.8% versus the New Zealand dollar, 0.3% relative to the loonie and yuan, 0.2% vis-a-vis the yen, and 0.1% against the euro and sterling.

The price of gold dropped below $1900 per ounce for the first time since late July and is 1.1% below Tuesday’s closing level. WTI oil is little changed in price.

Ten-year British gilt and Japanese JGB yields dipped a basis point, while their U.S. and German counterparts remained steady.

The Republican Party’s Supreme Court Blitzkrieg has all but wrapped up the likelihood of another conservative justice by yearend, and with a 6-3 majority Roe v. Wade’s days now appear numbered. How this maneuver impacts November’s election remains to be seen, but it is succeeding in pushing Covid-19 off the top spot of the news cycle.

For the first time in many weeks, there have been more than 50k new U.S. coronavirus cases reported in the last 24 hours. Statements released after monetary policy reviews in Thailand and New Zealand cite extraordinary uncertainties related to the pandemic that continue to cloud the economic outlook.

Preliminary Euroland and British purchasing manager survey results from September confirm slackening recovery momentum towards the end of the third quarter. The setback was concentrated in service sector activities that entail face-to-face human contact.

  • Euroland’s composite PMI reading fell 1.8 points to 50.1, indicating almost complete stagnation. The service-sector sub-index dropped 2.9 points to a 4-month low of 47.6. In spite of a 25-month high in the manufacturing index of 53.7, the overall composite PMI, a 3-month low, was 4.8% lower than July’s score.
  • The German PMI results mirror Euroland’s two-speed picture. Manufacturing printed at a 26-month high of 56.6, but services and the composite PMI fell to 3-month lows.
  • France‘s composite PMI fell below the 50 breakeven level to a 4-month low of 48.5 and was accompanied by a 4-month low in services as well.
  • The British composite PMI dropped more sharply than forecast to a 3-month low of 55.7. Growth slowed this month in both services and manufacturing.

The Bank of Thailand’s Monetary Policy Committee unanimously agreed to keep its policy interest rate at 0.5%, a level reached following 25-basis point cuts in February, March and May. A released statement revised growth projections slightly higher for 2020 but somewhat lower for next year and mentions the downside risks posed by a second wave of the coronavirus. Officials aren’t ruling out further easing:

 Looking ahead, the Committee would monitor developments of economic growth, inflation, and financial stability, together with associated risks, including external risks, the impacts of the COVID-19 pandemic, and the effectiveness of the fiscal, financial, and credit measures, in deliberating monetary policy going forward. The Committee would stand ready to use additional appropriate monetary policy tools if necessary.

At the Reserve Bank of New Zealand where officials made a single 75-basis point rate cut this year in mid-March to 0.25% but no further change this month, a released statement made a similar pledge to Thailand’s:

The Committee expects a rise in unemployment and an increase in firm closures, as resource reallocation continues. Members agreed that monetary policy will need to provide significant economic support for a long time to come to meet the inflation and employment remit, and promote financial stability. They also agreed they are prepared to provide additional stimulus.

Japanese data out today showed improved activity but also underscored the long way remaining before pre-2020 levels are restored. The all-activity index, a monthly proxy for GDP, rose 1.3% in July, down from June’s 6.8% jump and 10.6% weaker than its year-earlier level. The index posted quarter-on-quarter declines previously of 3.2% in 4Q19, 0.8% in 1Q20 and 10.8% in 2Q20. Meanwhile, Japanese preliminary September composite purchasing managers index rose 0.3 points to a 7-month high of 45.5, still well short of the breakeven level of 50.

After posting three straight monthly increases of 18.9% in May, 2.7% in June and 3.3% in July, Australian retail sales fell back 4.2% in August. Australia’s composite preliminary purchasing managers index printed in September at a 2-month high of 50.5, indicating just marginal upward growth.

Revised Spanish and Dutch second-quarter GDP data were reported. Spanish GDP plunged 17.8% on quarter and 21.5% on year, while Dutch GDP tumbled 8.5% on quarter and 9.4% on year.

German consumer confidence, which deteriorated from 9.9 in February to a low of -23.1 in May but had recovered to -0.2 by August, then weakened anew to -1.7 in September and -1.6 in October as a second Covid-19 wave began to take hold.

Investor sentiment toward the Swiss economy as reflected in the Zew expectations index partly trimmed the 6.3-point drop in July by rising from 43.4 that month to an August reading of 45.6.

Mexican retail sales rebounded for a third straight month in July, rising by a further 5.5% but remaining 12.5% below its year earlier level.

Over the 12 months through August, consumer prices fell 1.4% in Malaysia and by 0.4% in Singapore.

Polish unemployment of 6.1% in August matched its highest level since early 2019, and Norway’s average jobless rate in June-August of 5.2% was also at a 2020 high.

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

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