Covid-Related Setbacks in European Confidence, a Smaller Chinese Trade Surplus, and Another Day for Barrett Confirmation Hearings

October 13, 2020

Some risk aversion has returned to Europe. In many countries there, lockdown restrictions against Covid-19 have had to be tightened. And data reports out today reflect rising concern.

For example, the ZEW expectations index of financial investor confidence toward Germany suffered a big setback this month, dropping to a five-month low of 56.1 from September’s 77.4 outcome. The ZEW expectations measure for all of Euroland likewise also fell back to a 5-month low of 52.3 from 73.6. Both reports were accompanied by 7-month highs in perceived current conditions.

British labor statistics disappointed markets, too. The number of ILO-based jobs slumped by 153k in August after dipping just 12k in the prior month, and the unemployment rate jumped 0.4 percentage points to a 39-month high of 4.5%. Average weekly earnings remained soft, showing no on-year growth in the latest 3-month  period. British labor productivity (-2.0%) recorded the steepest quarter-on-quarter drop since the chill winter of 1974.

The U.K. is also drawing investor nervousness related to the fast-approaching summit of EU leaders in Brussels that starts Thursday. Such is seen as the moment of truth regarding whether Britain leaves the EU with or without any special trade arrangement.

German CPI inflation in September reconfirmed the preliminary estimate of -0.2%, its lowest level in 68 months and down from 1.7% last January. September CPI inflation in Sweden and Portugal decelerated to 0.4% and -0.1%, respectively.

Stock market action in the Pacific Rim had extended yesterday’s upbeat tone, with higher closings of 2.2% in Hong Kong, 1.0% in Australia, 0.8% in Indonesia, and 0.2% in Japan.

But in Europe, equities so far are down by 0.6% in Germany, 0.4% in France, Spain and Italy, and 0.2% in Great Britain.

The dollar strengthened overnight by 0.3% against the pound and Australian dollar, 0.2% versus the yen and loonie, and 0.1% relative to the euro and Swiss franc, but it slid 0.2% vis-a-vis the yuan following a sharp rise yesterday. Gold eased 0.1%.

Ten-year U.S. Treasury and British gilt yields are down 3 and 1 basis points. The price of West Texas Intermediate crude oil advanced 2.3%.

The fastest Chinese on-year growth this year in imports last month (13.2%) had not been anticipated, and it caused the trade surplus to drop about $22 billion on month to a 6-month low of $37.0 billion even though exports swelled to a record high level. Chinese motor vehicle sales grew at a faster 12.8% on-year pace in September, but their January-September level was still 6.9% below a year earlier.

U.S. consumer prices posted a smaller month-on-month rise in September (0.2%). Year-on-year inflation ticked 0.1 percentage point higher to match analyst expectations of 1.4%. Core CPI remained steady at a 1.7% rate. U.S. small business sentiment improved 3.8% in September to a 7-month high of 104, which is just 0.6 points south of the pre-pandemic level last February.

In today’s second day of U.S. Senate Judiciary Committee hearings considering the appointment of Amy Coney Barrett as a Supreme Court Justice, Vice-Presidential candidate Kamala Harris, a senator from California, will be one of the people asking Barrett questions.

Back on the U.S. campaign trail, President Trump proclaimed that he now is feeling so powerful, and former Vice President Biden indicated a disinclination to pack the court.

As expected, the scheduled review of Indonesian monetary policy ended with a decision not to changed the 4.0% 7-day reverse repo rate. Such had earlier this year been sliced four times between February and July by 25 basis points each time, but officials have become more guarded for fear of depressing the rupiah, which has lost more ground in 2020 against the dollar than other key currencies in Asia. According to a released statement, the economy is recovering from its Covid-related big recession thanks to fiscal support and strengthening export demand, inflation remains low, and monetary officials plan to encourage the upturn with quantitative asset purchases rather than further rate reductions.

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



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