Investors Take a Deep Breath but Yesterday’s Concerns Persist

October 27, 2020

U.S. stocks suffered through their most difficult day in two months yesterday, but futures point to a higher open on Tuesday. The dissipation of extreme risk aversion has been predictably accompanied by modest dollar deprecation today. The greenback slid overnight by 0.4% against the kiwi, 0.3% versus sterling and the loonie, 0.2% vis-a-vis the euro and Australian dollar and 0.1% relative to the yuan and Swiss franc.

Ten-year sovereign debt yields are unchanged in the U.S., Germany, Japan and U.K.. Gold is flat as well, but WTI oil partly trimmed yesterday’s sharp drop. Stock markets in the Pacific Rim closed mixed, and those in Europe have fallen slightly.

Covid-19 infections in Europe and the United States have set new highs in many places. The overall U.S. case count again exceeded 70k in the past 24 hours, while the death count since the start of the pandemic moved past 225k. A U.S. fiscal stimulus package remains elusive. The senate has adjourned, so nothing is going to get done through the first ten days of November.

Conservative Amy Coney Barrett won senate confirmation to fill the Supreme Court vacancy. The 52-48 vote was strictly along political lines. Her confirmation was completed in record time and occurred closer to a presidential election than any past appointments. There are profoundly controversial implications that will play out very quickly. Foremost, the Affordable Care Act could be declared unconstitutional, which would cause millions of people to lose health insurance in the middle of the pandemic. Abortion law is likely to be overturned, and the chances of the presidential election being decided by the courts rather than votes has increased. Dimmed prospects for the United States doing more to reduce carbon emissions is the paramount longer-term threat.

Several companies after yesterday’s market close reported better-than-forecast third-quarter earnings. This development is the main reason why stocks so far today have an improved tone.

A 1.9% advance in U.S. durable goods orders last month was almost four times greater than had been anticipated. While such orders in the first nine months of 2020 were 10.1% fewer than a year earlier, the September-over-September drop was just 0.4%, and core nondefense, non aircraft orders were 5.9% greater than a the year-earlier level.

Real GDP in South Korea grew 1.9% last quarter, narrowly beating expectations and halving the year-on-year decline to 1.3%. Strengthening net exports were primarily responsible for the turnaround from South Korea’s first-half recession.

French producer price deflation of -2.4%  in September followed back-to-back -2.5% results in July and August.

Icelandic PPI inflation accelerated to a 16-month high of 6.8% last month.

Spain’s unemployment rate climbed to a 10-quarter high of 16.26% last quarter from 15.33% in 2Q and 13.92% in the third quarter of 2019.

Chinese corporate earnings recorded their smallest year-on-year advance (10.1%) last month since May after a 19.1% increase in August. The year-to-date on-year slide, which had been a whopping 36.7% back in March, continued to become less negative at -2.4% in January-September.

Britain’s monthly distributive trades index suffered a huge setback in October, swinging to a 4-month low of -23 following +11 in September. The U.K. faces a rising likelihood of leaving Brexit with no special trade arrangement with the EU, and the Covid pandemic is deepening, too.

M3 money growth in the euro area accelerated to a year-on-year 10.4% in September and 10.0% in 3Q from 8.8% in the second quarter. Private-sector credit was steadier.

Hong Kong posted its smallest trade deficit in 20 months during September. The HKD 12.69 billion deficit was 60% smaller than a year earlier.

Sweden’s January-September trade surplus of SEK 48.4 billion was considerably wider than the SEK 18.8 billion surplus a year earlier.

Still to come: U.S. Case Shiller and FHFA house price indices and the Richmond Fed manufacturing index.

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




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