U.S. Covid Data Continues to Draw Close Scrutiny from Financial Markets – Currency Thoughts

U.S. Covid Data Continues to Draw Close Scrutiny from Financial Markets

July 8, 2020

The number of new U.S. Covid-19 cases identified in the past 24 hours once again surpassed 55,000, and there have been about 1000 related deaths, which is twice the number in the prior day. A number of Fed officials have recently pointed to this worrying development as perhaps foreshadowing a leveling off of economic recovery dynamics sooner and lower than had been assumed. The policy implication is that more policy support may be advised.

Dollar movements were mostly stagnant overnight, with no net change against the yen, kiwi, yuan, Australian dollar or sterling and dips of 0.1% versus the euro, loonie, and Swiss franc. As has lately been the case, the peso showed greater amplitude, posting a net 0.5% rise versus the dollar.

But amid continuing extremes of uncertainty related to the coronavirus and America’s toxic political atmosphere, the price of gold keeps climbing. It moved above $1800 per ounce yesterday for the first time since 2011. In that year, gold touched its highest-ever level of $1,920.30 per troy ounce. WTI oil was unchanged on net overnight at $40.61 per barrel, which represents a 33.6% drop compared to the end-2019 level.

Although ten-year German bund, British gilt, and Japanese JGB yields slid marginally, the 10-year Treasury yield moved a basis point higher.

There’s been a central bank interest rate cut in Malaysia, the fourth so far this year. The latest change in the overnight policy rate was a reduction of 25 basis points to 1.75%. Earlier cuts of 25 basis points were enacted in January and March followed by a 50-bp move in May. Bank Negara Malaysia‘s released statement observes that GDP contracted sharply last quarter but assumes recovery in the second half of 2020. “The pace and strength of the recovery, however, remain subject to downside risks emanating from both domestic and external factors. These include the prospect of further outbreaks of the pandemic leading to re-impositions of containment measures, more persistent weakness in labour market conditions, and a weaker-than-expected recovery in global growth. Underlying inflation is expected to be subdued and within expectations.”

Three Japanese economic indicators were reported today.

  1. The seasonally adjusted current account widened more than threefold in May on month to JPY 821 billion, as merchandise imports (-12.6% from April) fell more than twice as much as exports.
  2. The Economy Watchers index in June rose to a 5-month high of 38.8 from 15.5 in May and April’s low of 7.9.
  3. Reflecting monetary stimulus, on-year growth in bank lending accelerated to 6.2% in June from 4.8% in May, 2.9% in April and 2.0% in the first quarter.

House price inflation in Euroland increased by half a percentage point in the first quarter to 5.0%. ECB Vice-President De Guindos said recent data give some grounds for optimism regarding future growth.

Swiss unemployment receded in June by 0.1 percentage point to a 2-month low in seasonally adjusted terms of 3.3%.

Despite a 4% monthly rebound, Indonesian retail sales posted a 20.6% on-year drop in May, which represents the largest such decline in 141 months.

Taiwan’s $4.84 billion trade surplus in June was the widest in ten months and 26.7% bigger than a year earlier.

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

Tags: Bank Negara Malaysia, Japanese current account, U.S. Covid-19 trends


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