Dollar Up Marginally, Stock Markets Mixed, and Americans Observe Thanksgiving Day

November 26, 2020

The U.S. Thanksgiving holiday is depriving financial markets of some degree of leadership. The dollar overnight drifted up 0.1-0.2% against the euro, loonie, yen, kiwi, Swiss franc and Australian dollar. The U.S. currency rose a bit more against the peso (0.4%) and sterling (0.3%).

Stock markets in Asia closed up 1.4% in Indonesia, 1.0% in India, and 0.9% in Japan and South Korea but share prices fell 0.7% in Australia and 0.3% in New Zealand. European markets are mostly modestly lower, as are the yields on 10-year British gilts by 2 basis points and 10-year German bunds and Japanese JGBs by 2 bps each.

Gold‘s price strengthened 0.3%, while WTI oil settled back 0.6% overnight.

Central banks have commanded more attention than released economic data today.

Minutes from the October 28-29 meeting of the European Central Bank‘s Governing Council warn of a “clear deterioration in the near-term outlook” following the strong third-quarter rebound. Known as the ECB Account, the document cites euro appreciation as well as week demand and lower wage pressures as factors behind very subdued inflation. The second Covid wave has made the outlook for services particularly “gloomy.” A thorough reassessment of the economy and policy will be done at the committee’s December meeting.

The Swedish Riksbank’s repo rate has been at 0% or negative since February 2015. It’s last change, a 25-basis point hike to zero percent, was done in December 2019. A statement after the just-completed latest policy review by the central bank’s Executive Board expands the size of the asset purchase program from SEK 500 billion to up to SEK 700 billion and extends the program through the end of 2021. Officials do not expect the repo rate to move above 0% before the end of 2023. Today’s easing is meant “To give further support in an uncertain time, improve the conditions for a recovery and help inflation rise towards the target of 2 per cent. The increased spread of infection and tighter restrictions will lead to a new downturn in the Swedish economy.” Projected inflation was revised southward for 2020, 2021, 2022, and 2023.

Swedish consumer confidence (a 3-month low), business sentiment (a 2-month low), and PPI data (down 4.2% on year in October which matches September’s result) were meanwhile released today.

The Bank of Korea‘s policy interest rate was left at its record low of 0.5%. That level was reached after cuts of 50 basis points last March and another 25 bps  in April. CPI inflation is barely positive. The central bank Board promises to maintain an accommodative monetary policy, “thoroughly assessing developments related to the pandemic, the impact on the economy and financial markets here and abroad, changes in financial stability such as household debt growth, and the effects of the policy measures taken in response to the pandemic.”

The Central Bank of Sri Lanka completed its latest monetary policy review. The Standing Deposit Facility Rate and Standing Lending Facility rate were kept at 4.5% and 5.5%, respectively, levels that have prevailed since July after 250 basis points of easing during the first seven months of 2020. Officials identify a need for lending rates to decline further to fully embody the extent of the drop in the central bank rates and promise to introduce lending targets for selected sectors in the future. Sri Lanka has not been spared a second wave of the Covid-19 pandemic.

Japan’s September index of leading economic indicators was revised somewhat lower but still represents a 4-month high. The index of coincident economic indicators improved to a 6-month high.

German consumer confidence fell 3.2 index points to a 5-month low of -6.7 in December, which is closer to July’s reading of -9.4 than to August’s -0.2 recovery high.

French consumer confidence dropped four points to a 23-month low of 90 and is down from a pre-pandemic 104 reading last February.

On-year M3 money growth accelerated 0.1 percentage point in the euro area to 10.5% in October and averaged 10.1% over the last three reported months. On-year growth in credit to the private sector remained unchanged at 4.9%.

Mexican GDP soared 12.1% last quarter, an upward revision from 12.0% and following three quarterly contractions in a row that culminated with a 17.1% plunge in 2Q. Third-quarter GDP was still 8.6% lower than a year earlier.

South African PPI inflation accelerated 0.2 percentage points to a 7-month high of 2.7% last month.

Australian business investment fell 3% last quarter.

New Zealand’s October trade deficit of NZD 501 million was slightly less than half its year-earlier figure, and the latest 12-month trade surplus of NZD 2.2 billion represents the largest in 28 years.

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


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