Risk Aversion on Adverse Coronavirus News

October 26, 2020

The week before the U.S. election opened with equity markets on the defensive, led by drops of 2.4% so far in the German Dax, a 0.8% decline in China’s Shanghai Composite index, and losses of 0.7% in France, Italy, and South Korea. There are holiday closures in New Zealand for Labour Day, Austria for National Day, and Hong Kong for the Chung Yeung festival.

Europe has returned to standard time, compressing the time difference between New York and London by an hour to four hours and NY and Paris from six hours to five hours. Daylight savings time in the United States ends one week later on November 1st.

Record daily new Covid cases were reported in the United States and world. Vice President Pence’s chief of staff has it as do several other aides. European countries, especially Spain, are tightening restraints against activities that involve close social gathering. U.S. President Trump continues to assert that coronavirus conditions are about to take a big change for the better, and no sign emerged over the weekend to suggest that a fiscal stimulus is going to get done before the election, nor soon after for that matter. Today’s big political development will be the Senate vote confirming Amy Coney Barrett to the Supreme Court, which could presage the destruction of the Affordable Care Act very soon.

The dollar has strengthened today from the latest wave of investor aversion to risky assets. The U.S. currency climbed 1.0% against the peso, 0.4% versus the euro, Swiss franc and loonie, 0.3% vis-a-vis the Chinese yuan, and 0.2% relative to the yen and Australian dollar.

The ten-year U.S. Treasury yield is three basis points lower than Friday’s closing level, and U.S. stock futures are down.

The price of West Texas Intermediate crude oil sank 2.3% and is below $39 for the first time since October 2nd. Gold edged 0.1% higher.

The IFO Institutes monthly index of Germany’s business climate reflects increasing concern over rising Covid-19. Despite a greater-than-forecast 1.1-point advance to a 7-month high in current conditions, business expectations dropped 2.4 points to a 4-month low, and the overall business climate gauge fell back half a point to a 2-month low of 92.7. The sectoral indices weakened to a 3-month low for services and 2-month lows for trade and construction, but manufacturing topped zero for the first time in sixteen months.

Japanese corporate service prices ticked 0.1% higher in September, lifting their 12-month rate of rise to a 6-month high of 1.3% but still below the 2.1% pace last February. Japan’s August indices of leading and coincident economic indicators were each revised fractionally lower.

Preliminary Australian trade data for September reveal a 27% on-year shrinkage in the surplus due to a sharper 12% drop in exports compared to the 9% fall in imports. However, month-on-month comparisons showed exports up 3% but imports down 1.0%.

The National Bank of Kazakhstan retained a policy interest rate of 9.0% at its latest review. There had been very big changes, both up and down, earlier this year. The rate was hiked 275 basis points last March, then cut by 250 bps one month later and by a further 50 bps in July to its current level.

Czech business and consumer confidence fell in October to 2- and 6-month lows.

Turkish manufacturing confidence improved to a 29-month high in October, helped by a more competitive lira.

Spanish producer price deflation of 3.3% in October was its least negative since March.

Finnish PPI deflation, in contrast, swelled to four-month high of -5.3%in September.

Industrial production in Singapore leaped 10.1% on month in September,resulting in its greatest 12-month increase (24.2%) since the final month of 2011.

The Chicago Fed National Activity index indicates above-average growth for a fifth straight month in September. However, at 0.27, the pace of activity last month was very slight and the slower than in the previous months of this streak.

U.S. new home sales and the Dallas Fed manufacturing  index will be reported later than morning.

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




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