Cautious Optimism on a Couple of Fronts

October 9, 2020

The reopening of Chinese markets after the Golden Week holiday say the yuan advance 1.3%, reflecting ongoing strength in its offshore value, and China’s stock market advance 1.7%.

The dollar also fell overnight by 0.6% against the Swiss franc, 0.5% relative to the kiwi and Mexican peso, 0.4% versus the euro, 0.3% vis-a-vis the Australian dollar, 0.2% against the loonie and 0.1% relative to the yen and sterling.

Equities rose 0.8% in India and 0.3% in Indonesia and New Zealand but fell 0.3% in Hong Kong and 0.1% in Japan. Stocks in Europe also have been narrowly mixed, and U.S. futures show mild further appreciation.

Hurricane Delta in the Gulf of Mexico has strengthened to a category three storm and is expected to make landfall in Western Louisiana this evening. WTI oil has settled back 1% but remains above $40.00 per barrel. Gold climbed 1.5% overnight and is above $1920 per ounce.

Ten-year U.S., German, and British sovereign debt yields are down two basis points, and the Japanese JGB has slipped one basis point.

Further progress has been reported in closely watched talks over a new U.S. fiscal stimulus and negotiations between the EU and Great Britain over a post-Brexit trade arrangement. Meanwhile, concern that the U.S. election will yield an indecisive outcome has lessened as opinion polls show the Biden-Harris ticket lengthening its lead.

One area lacking good news has been the coronavirus counts, where both new cases and, to a lesser extent deaths, are trending back up. Over the past 24 hours, there were over 351k new Covid-19 cases globally including 57k in the United States.

Released data this Friday show a mixed bag of news.

Industrial production in Italy posted a considerably greater-than-expected 7.7% monthly increase in August, resulting in the smallest on-year decline (0.3) in 7 months. Finnish industrial production went up 2.0% in August, cutting the 12-month rate of decline to 2.4% from 6.2%. But French industrial production went up less than forecast. August’s 1.3% advance followed monthly increases of 26% in May, 13% in June and 3.8% in July. Belgian industrial production ticked only 0.2% higher, resulting inĀ  larger 6.4% on-year drop after July’s 12-month slide of 5.2%.

British industrial production also disappointed, rising just 0.3% instead of the expected 2.5% and remaining 6% weaker than February’s pre-pandemic level and also down 6.4% from a year earlier. Outputs of manufactured goods and construction were respectively 8.4% and 13.0% below their year-earlier levels. Separately, Britain’s merchandise trade deficit swelled to a 5-month high of GBP 9.01 billion in August, and the goods and services trade surplus fell to GBP 1.364 billion, its smallest amount in a string of five straight monthly surpluses. The monthly level of GDP in June-August was 9.2% smaller than a half year earlier.

Greek and Belgian industrial production in August was 3.8% and 6.4% lower than a year earlier. Dutch factory output fell 4.0% over the same 12-month span.

Although up 1.7%, the monthly rise of Japanese real household spending was smaller than forecast in August and resulted in an 11th straight on-year drop, this time of 6.9%. Japanese labor cash earnings recorded a 1.3% year-on-year drop in August (-1.4% adjusted for inflation).

Denmark’s current account surplus of DKK 8.2 billion in August was only about half the size of July’s surplus and at a 5-month low, and a mere 0.3% monthly rise of Swedish household consumption in August was easily the tiniest in a string of four straight increases.

Among price data reports today, Norwegian CPI inflation fell 0.1 percentage point to 1.6% in September, and that economy’s producer prices were 9.6% lower than in September 2019. Greek CPI inflation in September of -2.0% was its most negative in 62 months.

Reserve Bank of India officials decided unanimously to retain the central bank repo rate at 4.0%. Such had been lowered earlier this year by 75 basis points in March, 25 bps in April and 40 bps in May. India is experiencing a particularly severe bout of Covid-19. Real GDP is expected to drop nearly 10% this fiscal year, and CPI inflation is projected to stay within target. A released statement reaffirms that the loose monetary policy will be maintained for a prolong time.

Canadian September labor market statistics will be released shortly.

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

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