Risk Aversion Rekindled by Downbeat Economic Forecast and Data as Well as Covid-19’s Relentless Spread
Major stock markets in Europe show losses so far today of 1.2% in the U.K. and Germany and 1.0% in France and Spain. Equities closed down 1.4% in Hong Kong, 1.1% in South Korea and Singapore, and 0.4% in Japan. U.S. futures suggest that at least half of Monday’s strong rise in equity prices will be reversed at the open.
The latest wave of risk aversion goosed the dollar up 1.2% against the peso, 0.5% relative to the kiwi, 0.3% vis-a-vis the yen and 0.2% against the euro and loonie.
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WTI oil fell 1.0%, while the price of gold lost 0.6% overnight.
The EU released its quarterly macroeconomic forecast, revising the projected contraction of Euroland GDP up a full percentage point to 8.7% and projecting sub-target CPI inflation in the joint currency area of 0.3% this year and 1.1% in 2021.
May industrial production figures were released for several economies most notably Germany.
After plunging 8.9% in March and 17.5% in April, German industrial production rose by a smaller-than-forecast 7.8% in May, leaving a huge year-on-year drop of 19.3%.
Swedish industrial production, which had dived 16.4% in April, edged down by a further 0.1% in May and was 16.5% lower than a year earlier. Swedish factory orders sank 18.4% on year in the latest month.
Greek industrial production rebounded 7.8% in May after back-to-back drops of 8.9% in March and 17.5% in April. May production thus remained 19.3% lower than a year earlier.
Danish industrial production fell 2.0% on month and 19.0% on year in May. A 3.0% on-year rise in Norwegian industrial production was the smallest 12-month increase since January, and production fell on month by 1.0% after a 0.7% monthly slide in April.
May-on-May declines of industrial production amounted to 25.7% in the Czech Republic and 30.7% in Hungary.
At the monthly policy meeting of the Reserve Bank of Australia, the official cash rate was kept at a record low 0.25% as was expected, and a released statement affirmed forward guidance that the rate will not be lifted until there is clear progress toward the goals of full employment and sustainable CPI inflation within 2-3%. Fiscal and monetary macroeconomic support is going to be necessary for quite some time. The economic and Covid-19 outlooks remain highly uncertain. The OCR has been at 0.25% since a pair of cuts in March of 50 basis points on the 3rd followed by 25 bps on the 19th.
Australia’s AIG-compiled services-sector purchasing managers index only edged up 0.1 point to 31.5 in June, remaining near the record low of 27.1 experienced in April.
Consumer confidence in South Africa plummeted 24 points to -33 last quarter, which is the weakest reading in 35 years.
In Japan, real household spending posted a record-large 16.2% on-year drop in May and fell on month for a third straight time. Japanese nominal and real cash earnings were each 2.1% weaker than in May 2019. Japanese international reserves rose $4.9 billion in June and increased by $59.4 billion during the first half of 2020, and yet another released indicator today revealed a 130-month low of 74.6 in Japan’s May index of coincident economic indicators. The index of leading economic indicators recovered only 1.6 points above April’s 133-month low of 77.7.
At -63%, business confidence last quarter in New Zealand was not quite as low as the first-quarter reading of -70% but still far beneath -34% experienced in the second quarter of 2019.
Retail sales in Italy was 10.5% weaker than a year earlier in May despite a 24.5% monthly advance as many businesses reopened.
The Covid-19 pandemic keeps chugging along. Over the past 24 hours, there have been 183,331 new reported cases around the world, including some 58 thousand in the United States. The sustainability of returns to semi-normal conditions is viewed with considerable skepticism.
Price data reported today show
- Negative Taiwanese CPI and PPI inflation of 0.8% and 10.4% in June.
- A 5.1% on-year decline of Austrian wholesale prices in June.
- An acceleration of Dutch CPI inflation to a 4-month high of 1.6% in June.
- A 3-month high in Filipino CPI inflation of 2.5% in June.
France experienced a record monthly current account deficit in March of EUR 8.493 billion.
South Korea’s current account returned to surplus in May after posting its only deficit in the past year during April, but the $2.29 billion size of the May surplus was 56% smaller than a year earlier.
Chinese foreign exchange reserves increased by $10 billion to $3.112 trillion last month.
Britain’s Halifax price index fell on month for a fourth straight time in June but was 2.5% higher than a year earlier. Labor productivity in the U.K. was revised to show a bigger 1.3% quarterly decline in 1Q.
Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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