Dollar Down but Stocks Up After U.S. Presidential Debate and First Glimpse at October PMI Surveys

October 23, 2020

The dollar slipped by 0.4% overnight against the Australian and Canadian dollar, 0.3% relative to the Swiss franc, 0.2% vis-a-vis the peso, kiwi, and euro, and 0.1% versus the yen and yuan. Contrary to the softer trend, the dollar has edged up 0.1% against sterling, and sovereign debt yields and share prices are each firmer.

Equity markets rose 0.5% in Hong Kong, 0.6% in New Zealand, and 0.4% in both Singapore and Indonesia. Share prices in Europe so far show more solid advances of 1.5% in the U.K., 1.4% in France, 1.2% in Germany, and 1.1% in both Spain and Italy. China, which drew a fair amount of discussion at the Trump-Biden debate in Nashville last night, experienced a stock market drop today of 1.0%.

Analyst initial reactions on last night’s U.S. presidential debate are that it is unlikely to be a game changer. The tone was more civil than the first debate, which isn’t saying much, and Trump presented himself as less out of control. Biden did well for the most part, and the issues that have Trump trailing in opinion polls — handling of the pandemic and excessive melodrama — weren’t put to rest. Equities appear to be up today on fresh optimism that a U.S. fiscal package may yet get approved. Speaker Pelosi indicated the sides are closer, but achieving a deal hinges more on what Senate Majority Leader McConnell is prepared to concede. And he’s been conspicuously aloof.

Ten-year sovereign debt yields are up two basis points in the U.K. and by a single basis point each in the U.S., Germany, and Japan.

Prices for West Texas Intermediate crude oil and gold show overnight rises of 0.4% and 0.5%.

The Central Bank of Russia kept its 4.25% policy interest rate unchanged at the latest monetary policy review. Such had been cut between February and July by a total of 200 basis points, and a released statement today projects likely future reductions in the future:

If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction at its upcoming meetings.

Preliminary purchasing manager survey findings of economic conditions in October dominate today’s data stream, revealing that rising Covid infections and selected fresh restraints on certain activities did indeed hinder the pace of recovery.

  • Great Britain’s composite PMI reading dropped 3.6 index points to a 4-month low of 52.9, having crested at 59.1 in July and then 56.2 in August. Scores above 50.0 signal rising activity and improving conditions. Both manufacturing and service PMIs remained above 50.0, but each reading declined for a second straight month.
  • Japanese preliminary October PMIs were again below the 50 threshold at an 8-month high of 46.7 on the composite index and a 9-month high of 48.0 in manufacturing. For services, which are particularly exposed to Covid flareups, the PMI fell to a 2-month low of 46.6. Japan’s contraction is slowing, but the rebound from extreme conditions in the spring is evolving quite slowly.
  • In Australia where restrictions against social activity were loosened, the services PMI rose to a 3-month high of 53.8, and the composite PMI of 53.6 also constituted a 3-month high in spite of a 2-month low in the manufacturing component. Even so, new demand remained subdued, and high unused capacity raises further doubt about the outlook.
  • Most disappointing of all was Euroland’s PMI report. From a high of 54.9 in July, the composite PMI there fell for a third straight time and even dropped below 50. At 49.4, the report indicates a renewed downturn of activity to start the fourth quarter. Among countries other than Germany and France, activity shrunk for a third consecutive month. Euroland’s manufacturing PMI rose 0.7 index points to a 26-month high of 54.4 but was outweighed by a 1.8-point drop of the service sector PMI to a 5-month low of 46.2.
  • France‘s composite PMI had touched 57.3 back in July but has dropped each ensuing month and been below 50 in both September and October. The latest reading of 47.3 represents a 5-month low. Curfews have been reimposed in some large cities, orders are weaker, business sentiment is ebbing, and winter is approaching.
  • The German economy has been more resilient than Euroland’s other members. Factory output in October grew at the best rate since February 2011, and the overall manufacturing PMI rose to a 30-month high of 58.0. Still, this strength wasn’t enough to offset a 4-month low of 48.9 in the services PMI that broke a string of three monthly readings above 50, and so even the composite German PMI — a two-month low of 54.5 — showed a slower rate of overall growth than experienced in September.

Other data releases this Friday feature Japanese and New Zealand consumer prices and British retail sales. Core Japanese CPI inflation in September of -0.3% was non-positive for a fourth straight month. Overall CPI inflation of 0.0% was at a four-year low. New Zealand CPI inflation, which gets reported only quarterly, slipped 0.1 percentage point to a 10-quarter low of 1.4% in the third quarter of 2020. British retail sales volume easily beat expectations,  increasing 1.5% on month in September and lifting the 12-month rate of rise to a 17-month high of 4.7%. A related British data release showed consumer confidence weakening in October to a 5-month low. This drop was not expected and casts doubt on the next retail sales release.

Irish consumer confidence has been imperiled by the post-Brexit trade talks and fell to 52.6 in October, a 5-month low after an average reading in the four prior months of 61.

Swedish producer price inflation remained negative in September for a ninth straight month, but the on-year drop of 4.6% was the smallest since June.

Singaporean consumer price inflation rose to zero percent in September, its first non-negative reading since April.

Business confidence in Hong Kong, which had been battered by repressive politics as well as the pandemic, recovered three index points to a five-quarter high of -8 (still a weak level) in the final quarter of 2020.

Year-on-year rises in Taiwanese industrial production of 10.7% and retail sales of 2.9% in September represent a 6-month high and 2-month low, respectively.

Mexican retail sales increased 2.5% in August. Although such was the fourth consecutive increase, sales in August were still 10.8% lower than a year earlier.

Finally and worryingly, coronavirus trends continue to worsen. Globally reported cases in the past day exceed half a million people, and deaths topped 7K. New U.S. cases accelerated to more than 75k and were accompanied by about 1000 deaths.

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



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