Trump on Steroids Has People on Edge and Unsure What Happens Next

October 7, 2020

President Trump returned from the hospital unrepentant and as erratic as ever. His major pronouncement on Tuesday — a unilateral postponement of stimulus talks until after the election — was seemingly reversed by an overnight tweet expressing a desire for a simplified “stand alone” bill. He downplayed the coronavirus threat and claimed to feel 20 years younger, but the White House itself, along with the Dakotas and Wisconsin, is now among America’s virus hot spots. On the global scale, newly reported cases have been rising at almost a third of a million per day, and the U.S. share of that incremental growth is stuck above 40k even as the flu season beckons. At Wednesday daybreak, all that’s certain is that FOMC minutes will be released this afternoon, and the vice presidential debate is a “go” for this evening. Amy Barrett’s confirmation hearings remain a top pre-election Republican priority, but the timetable is unclear. What happens after November 3rd is anyone’s guess, and fearful possibilities are proliferating in the public’s imagination.

The tremor in U.S. financial markets late Tuesday to not extend into Asian trading overnight. Stock markets in the Pacific Rim closed up 1.3% in Australia, 1.1% in Hong Kong, 0.9% in South Korea and 0.8% in India. European markets are down but just marginally.

The dollar rose overnight by 0.6% against the peso, 0.5% relative to the yen, and 0.4% versus sterling but exhibited little net change vis-a-vis the euro, Swiss franc, loonie , Aussie dollar or kiwi. China’s Golden Week holiday commemorating the anniversary of the 1949 Communist Revolutionary victory there continues, but the offshore yuan advanced to a 17-month high against the dollar. The U.S. currency, in contrast, rose to yet another record high against the beleaguered Turkish lira, which has fallen some 24% since end-2019.

Ten-year U.S. Treasury and German bund yields are three and one basis points firmer.

The prices of WTI oil and gold, however, are 2.2% and 0.9% softer.  The U.S. Gulf coastline is bracing for Hurricane Delta with a current category 3 classification.

A second wave of the Covid-19 pandemic appears at hand in Europe and has resulted in a slowing rebound from the spring recession.

  • German industrial production had been projected to recover by a further 1.5% in August but instead dipped 0.2%. That’s the first monthly decline since a 17.6% plunge in April and resulted in a continuing hefty on-year drop of 9.6%.
  • Spanish industrial production went up only 0.4% in August following successive advances of 14.4% in May, 13.6% in June, and 9.6% in July. Output was still 5.7% weaker than a year earlier.
  • Czech industrial production fell 0.9% in August in contrast to a 5.7% rise in July, and that drop left output 5.5% below its year-earlier level. Construction in the Czech Republic fell 9.7% between August 2019 and August 2020.
  • Denmark experienced a tenth straight month without a 12-month increase of industrial production. August output was 7.7% below a year earlier.

In today’s data menu, there were some bright spots. In Britain, house price inflation according to the Halifax index accelerated 2.1 percentage points in September to a 51-month high of 7.3%.

Australia’s AIG construction PMI climbed 7.3 index points in September to an 18-month high of 45.1. However, AIG also reported a lower service-sector purchasing managers index that month of 36.2, signaling the greatest rate of contraction since June.

France’s EUR 470 million current account deficit in September was the smallest since May.

Italian retail sales rebounded from a 6.0% drop in July with an 8.2% upsurge in August. This produced its first on-year advance (0.8%) since February versus a 12-month 26.7% plunge posted in April.

Austria provided the latest evidence of strong disinflationary pressure in Europe.  Wholesale prices fell 0.8% on month and 5.0% on year, the biggest 12-month drop since June. ECB President Lagarde remarked that  European Central Bank officials are prepared to augment monetary stimulus if needed, and even a more negative interest is not being ruled out.

Business sentiment in South Africa has flattened  short of pre-pandemic levels. The Sacci index printed at 85.7 in September after 85.8 in August and 82.8 in July but  beneath the end-2019 level of 93.1. Its low point of 70.1 occurred in May.

House price inflation in the euro area averaged 5.0% in the second quarter, similar to 5.1% in the prior quarter but up from 4.3% in the second half of 2019.

Japan’s index of leading economic indicators rose to 88.8 in August from 86.7 in July and 83.8 in July. The index of coincident economic indicators climbed 1.1 points to 79.4, and officials commented said that its long downtrend is starting to flatten. Japanese international reserves fell $8.74 billion last month, and the Bank of Japan’s balance sheet swelled by 41.1 trillion yen during the third quarter, bring the year-to-date increase to 116.9 trillion yen.

Chinese international reserves contracted $22 billion in September but remained substantial at $3.143 trillion.

Hong Kong’s private sector purchasing managers index rose 3.7 points in September to a 3-month high of 47.7. It bottomed in February at 33.1.

The Central Bank of Iceland‘s 7-day term deposit rate was left unchanged at the latest monetary policy review. Such has been at 1.0% since a 75-basis point cut in May. The rate had previously been lowered by a 100 basis points in March and 25 bps in February. Officials painted a familiar picture of growth, which had been slightly less weak than assumed in the spring but which has more recently slowed, prompting officials to downgrade the outlook a bit. The 1.0% interest rate represents a record low, and future policy decisions are tied to the uncertain evolution of the Covid-19 pandemic.

FOMC minutes will be published this afternoon. The Harris-Pence debate tonight takes place in Salt Lake City.

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




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