Fourth Quarter Starts with Lower Dollar, Firmer Equity Prices, and a Slew of Manufacturing PMI Surveys

October 1, 2020

The dollar fell overnight by 0.5% against the Swiss franc, Australian dollar, kiwi and sterling, by 0.4% versus the euro and by 0.2% relative to the Canadian dollar. A particularly sharp 1.5% drop came at the expense of the Mexican peso. The dollar is steady against the yen.

U.S. Covid-19 cases increased 42.5k over the past 24 hours, and there were more than 900 additional deaths caused by the illness.

China began observance of its extended National Holiday. In offshore trading, the yuan appreciated to a 17-month high, having gained about 4% against the dollar since mid-year.

Share prices in the Pacific Rim rose 2.1% in India, 1.7% in India, 1.4% in Singapore and 1.0% in Australia. European stock markets so far show daily advances of 1.1% in Switzerland, 0.9% in France, 0.8% in Italy, 0.7% in Spain and the U.K. but just 0.3% in Germany. U.S. futures point to a higher open. Japan’s Nikkei closed unchanged.

U.S. Treasury Secretary Mnuchin and Speaker Pelosi expressed optimism that a fiscal stimulus compromise may be reached. A temporary funding bill signed by President Trump has kept the government open as a new fiscal year begins.

In commodity trading overnight, WTI oil fell 1.6%, while gold climbed 0.4%.

Ten-year British gilt, U.S. Treasury and German bund yields are up by 3, 2, and 1 basis points.

The Bank of Japan’s quarterly Tankan survey of corporate conditions and expectations revealed a third-quarter improvement that was not quite as extensive as anticipated, and the latest diffusion indices remained significantly adverse, printing at -44 for large non-manufacturing firms, -27 for large manufacturers, and -28 for all participating companies. Projected investment spending growth in fiscal 2020 was revised lower to 1.4% among all large firms but higher to minus 2.7% for all companies large and small.

Japan‘s September manufacturing purchasing managers index was revised up to a 7-month high of 47.7, but being less than 50 implies continuing contraction.

Other Asian factory PMIs reported this first day of October include Thailand’s 9-month high of 49.9, the Philippines’ 7-month high of 50.1, India’s 92-month high of 56.8, and Vietnam’s 14-month high of 52.2 but also a 4-month low of 49.0 in Malaysia and a 2-month low of 47.2 in Indonesia.

Euroland’s final September factory PMI score matched the preliminary reading of 53.7 and constitutes a 25-month high. Germany accounted for the bulk of the improvement from a 51.7 reading in August. The German PMI of 56.4 represents a 26-month high, and Euroland factory production outside of Germany actually fell to a 3-month low. The Greek and Irish PMIs were each 50.0, implying zero growth.

The British manufacturing purchasing managers index fell back 1.1 points but remained buoyant at 54.1. Production and orders continued to recover, but job shedding also persisted.

The Swiss manufacturing PMI advanced to a 19-month high of 53.1.

In Nordic Europe, the September PMIs of Sweden, Norway, and Denmark rose to 22-month, 7-month, and 2-month highs of 55.3, 50.3, and 54.4, respectively.

In Eastern Europe, The Czech PMI of 50.7 was above 50 for the first time since November 2018, but the Russian PMI swung back from 51.1 in August to a 2-month low of 48.9 last month. Poland’s 50.8 reading was at a 2-month high, while Hungary’s 48.8 PMI was its lowest since June.

Two separately compiled Australian manufacturing PMI surveys conveyed conflicting messages, as the AIG index fell to a 4-month low of 46.7, while the CBA-compiled PMI rose 0.5 points to a 19-month high of 55.4.

Turkey’s manufacturing PMI fell back to a 4-month low of 52.8, but the Absa-compiled South African manufacturing PMI hit a record high of 58.3.

Swiss consumer prices were flat on month in September but also posted the smallest year-on-year drop (0.8%) since March. Swiss retail sales in August fell 1.9% on month and recorded their smallest 12-month increase (2.5%) since April.

Producer prices in the euro area edged up 0.1% in August due to a 0.6% monthly advance in energy but were 2.5% below their year-earlier level.

Unemployment is still cresting in Euroland where the jobless rate of 8.1% in August, a 25-month high, was 0.1 percentage point higher than July’s level. Among youth, unemployment rose to 18.1% versus 15.5% a year earlier.

Polish CPI inflation hit a 3-month high of 3.2% in September, but Indonesian CPI inflation rose 0.1 percentage point to 1.42% that same month.

South Korea’s $8.88 billion trade surplus last month was 50.8% wider than in September 2019, as export growth of 7.7% dwarfed the 1.1% rise in imports.

Bangko Sentral ng Pilipinas left the Filipino overnight reverse repo rate unchanged at 2.25% after its latest monetary policy review. Officials concluded that their policy settings remain appropriate. There are signs of an upturn in domestic demand, but Covid uncertainty is still elevated and tilting price risks to the downside. The key interest rate had been cut earlier by a total of 175 basis points from February to June.

U.S. new jobless insurance claims of 837k last week were a tad below the street forecast of 850k and consistent with the recent flattening downtrend.

August changes in U.S. personal income (-2.7%) and personal consumption expenditures (+1.0%) were respectively marginally lower and marginally above analyst expectations. The PCE price deflator showed a rise of inflation to 1.4%.

The U.S. manufacturing PMI survey will be reported later this morning.

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

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