Start of a Fresh Month Sees Dollar Drop and Share Prices Resume Their Rise

December 1, 2020

A slew of manufacturing purchasing manager surveys taken in November were released today. Fed Chairman Powell and Treasury Secretary Mnuchin testify before the Senate Banking Committee today on the Cares Act. After dipping on Sunday, Covid cases and the death count turned upward over the past 24 hours both globally and in the United States. CPI inflation in Euroland remained at -0.3% for a third straight month in November and below zero percent for the fourth consecutive time. Several countries reported third-quarter GDP growth.

In financial markets, the dollar fell 0.6% against the peso, 0.5% versus the euro, 0.4% relative to the loonie, Swissy, and kiwi, 0.2% vis-a-vis the Australian dollar and sterling, and by 0.1% against the yuan. The yen weakened in tandem with the dollar.

Share prices on the first day of December advanced 2.0% in Indonesia, 1.8% in China, 1.7% in South Korea, 1.3% in Japan, 1.2% in India and Taiwan, 1.1% in Australia, and 0.9% in Hong Kong. The British Ftse is up 1.7%, and U.S. futures point to about a 1.0% advance at the U.S. open. Equities in Germany, France, and Spain are showing gains so far of 0.5-0.8%.

The ten-year U.S. Treasury yield climbed 4 basis points today, twice as much as the increases in German bund and British gilt yields. The price of  WTI oil, which advanced spectacularly last month, settled back 0.7% so far today as OPEC put off its meeting to discuss production until December 3rd. Gold‘s price is 1.8% higher.

Euroland’s manufacturing purchasing managers index fell to a 2-month low of 53.8 in November from a 32-month high in October. But if Germany is excluded, the PMI last month would have been just barely above the 50 level that delineates expansion from contraction. Germany’s PMI reading was 57.8. But the Italian and Spanish scores of 41.5 and 49.8 were at 5-month lows, and the French and Greek readings of 49.6 and 42.3 touched 6-month lows.

November PMI readings in the U.K. of 55.6, Sweden of 59.1, and Switzerland of 55.2 were at respective 35-, 35- and 23-month highs. The Czech PMI of 53.9 was a 27-month high. But Poland‘s score was just 50.8 for a third straight month, and Hungary‘s 51.9 was only a 3-month high. Norway’s PMI fell 1.5 points to a 2-month low of 51.9, and Denmark‘s index plunged 16.1 index points to a 7-month low of 47.7.

Japan’s manufacturing PMI of 49.0 was significantly better than the preliminary estimate and represents the smallest rate of factory sector contraction in 15 months. China’s Caixin-compiled manufacturing PMI rose 1.3 points to a 10-year peak of 54.9. South Korea saw its manufacturing PMI climb to the highest level (52.9) since February 2011, and the PMI readings of 56.9 in Taiwan and 50.6 in Indonesia represented 35- and 3-month highs. In contrast, lower readings than seen in October were reported for Thailand (50.4), Vietnam (49.9), Malaysia (48.4), India (56.3), Turkey (51.4), Russia (46.3), Brazil (64.0), and South Africa (52.6).

Two separately compiled Australian purchasing manager indices gave different signals. The one compiled by AIG fell 4.2 points to a 2-month low of 52.1, while that from IHS rose 1.6 points to a 35-month high of 55.8.

Canadian real GDP rebounded 8.9% (40.5% at an annualized rate) last quarter from contractions of 1.9% in 1Q and 11.3% in 2Q. GDP was still 5.2% less than a year earlier compared to a 1.9% increase between the third quarters of 2018 and 2019. Monthly GDP estimated from the supply side advanced for a fifth straight month in September, this time by 0.8%, but was 3.9% lower than a year earlier. Monthly growth was led by a 1.4% increase in industrial production, which nonetheless was 7.1% below the September 2019 level.

Swiss real GDP rebounded 7.2% in the third quarter after back-to-back contractions of 2.5% in 1Q and 7.0% in the second quarter. GDP was down 1.6% compared to the same quarter a year earlier, whereas GDP over the four quarters through 3Q 2019 rose by 1.3%.

Italian GDP growth last quarter was revised downward by 0.2 percentage points to 15.9%. On a year-on-year basis, GDP fell 5.0% in the latest quarter.

Czech GDP, which had dropped 3.3% in 1Q and 8.7% in 2Q, rebounded 6.9% last quarter but also was still 5.0% below its year-earlier level. Hungarian GDP jumped 11.4% on quarter and fell 4.6% on year.

South Korean GDP was 2.1% higher in 3Q than 2Q but 1.1% lower than a year earlier.

Updated growth forecasts from the OECD now project global GDP contracting 4.2% this year but rising 4.2% in 2021. Chinese GDP is expected to expand more than twice as fast (8.0%) in 2021 as U.S. projected GDP of 3.2%.

Japan’s jobless rate rose 0.1 percentage point to 3.1% in October and was 0.7 percentage points higher than a year earlier.

German unemployment produced a pleasant surplus, falling unexpectedly by 39k workers in November after having dropped 38k in October. The jobless rate slipped 0.1 percentage point to 6.1%, a 6-month low.

British housing prices continue to accelerate sharply. The on-year change of the Nationwide U.K. house price index rose from -0.1% in June to 5.8% in October and 6.5% in November, which is the largest 12-month rate of increase in 70 months.

Australia’s current account recorded a sixth consecutive quarterly surplus, this time of 10.02 billion Australian dollars versus A$ 7.84 billion in the third quarter of 2019.

The Reserve Bank of Australia as was expected left its Official Cash Rate at 0.10% and released a statement that doesn’t foresee a rate increase until CPI inflation has entrenched itself safely within the 2-3% target range. That’s unlikely before late 2023 at the soonest. Stimulus continues to be provided through the asset purchase program. The OCR had earlier been cut this year twice in March by 25 basis points each time and, most recently, by 10 bps a month ago.

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




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