Stock Markets Looking Vulnerable

September 25, 2020

This has been a difficult week for risk-laden assets but a good one for the dollar because of its safe-haven appeal. In turn, that property of the U.S. currency is ironic, given mounting uneasiness that President Trump may not accede to a peaceful transition of power should he lose the election.

Stock markets are lacking traction. Most of Thursday’s advances in the United States were squandered in the last hour of trading. Share prices rallied overnight in the Pacific Rim (up 1.5% in Australia, 0.9% in Singapore and 0.5% in Japan, for instance). But European trading has been a bust, and U.S. futures are moving lower too. So far, equities in Europe show losses today of 1.8% in France and Germany, 1.6% in Italy, 1.1% in Spain and 0.5% in the U.K..

Ten-year German bund and British gilt yields fell 2 basis points each.

Prices for WTI oil and gold are down 1.1% and 0.8% today.

But the dollar is wrapping up its best week in a half year, including gains so far today of 0.8% against the Mexican peso, 0.3% relative to the euro, 0.2% vis-a-vis the Aussie dollar and Swiss franc and 0.1% against the yen and loonie. Sterling and the Chinese yuan are unchanged.

Prospects for a U.S. fiscal stimulus package passing before the election still look fairly bleak, although House Democrats reportedly are preparing a new and somewhat less aggressive offer.

The pace of new Covid-19 infections keeps rising. Over the past 24 hours, worldwide cases jumped more than 310k, including a 45k increase in those reported in the United States. Without containment of the pandemic, economic recovery will be fraught with missteps as countries are forced to reimpose social activity restraints and consumer confidence stays shaky.

New U.S. jobless insurance claims were fewer than 1 million in each of the last four reported weeks but nonetheless still exceed the worst level of the Great Recession by about 200k workers.

Consumer confidence in South Korea fell by 8.8 index points from a 6-month high in August to a 4-month low in September. Filipino consumer confidence this quarter fell to its weakest level since at least the end of 2006.

In Britain where new lockdown measures appear imminent, a 2-point improvement in consumer confidence this month was dismissed as old news, and at -25, September’s result was only 9 index points higher than the 2020 low. British car production in August was 44.6% less than a year earlier.

After rebounding 9.7% in May and 1.4% in June, Danish retail sales posted back-to-back monthly declines of 1.0% in July followed by 1.2% in August, and their 12-month rate of increase retreated to 2.0% in August from 7.3% in July.

Austrian industrial production in July remained 4.4% weaker than a year earlier, and Mexico’s economic activity index that month was still 9.8% weaker than in July 2019.

U.S. durable goods orders rose only 0.4% last month, which is about a fourth of what analysts were anticipated, and the January-August level of orders for durables was 11.3% fewer than a year earlier.

Today’s economic news also included harbingers of deflation. Producer prices in Spain slid 0.2% on month and fell 3.5% on year in August, and those in Switzerland also dropped 0.2% on month and were 4.6% below those a year earlier.

Not all today’s economic news has been disappointing. In Italy, consumer and business confidence printed at 7-month highs in September. Industrial production in Singapore jumped 13.8% on month and 13.7% on year in August. And the number of unemployed French workers contracted 171k in August.

On the monetary policy front, Mexico’s overnight interbank rate was cut another 25 basis points to 4.25% (see review). And the quantitatively expansive monetary policy of the European Central Bank was reflected in August on-year increases of 9.5% in euro area M3 money and 8.0% in total credit to the private sector and government. Australia’s government plans to loosen regulations on bank credit to promote the efficiency of accommodative monetary policy there.

Still to come: U. Michigan estimate of U.S. consumer sentiment.

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

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