LOCKDOWN LEVEL 2 [DAY 7]
TOTAL DAYS 151 – 07 HOURS 30 MINUTES
By the close of trade on Friday, the South African rand strengthened against the US dollar.
- Questions abound on whether US President Donald Trump is practicing the “art of the deal” on China, by scaring it into making major concessions on trade to avoid being decoupled from the global financial system? There are signs this may be so but, even if Trump is bluffing, many in China are taking the threat seriously. A recent report by Reuters quoted officials and economists in China saying that a “broad financial war has already started” between the two countries and that Beijing has to be prepared for Washington’s “nuclear option” of kicking China out of the dollar payment system.
- The weakening U.S. dollar is set to slide even further, but its importance as the world’s reserve currency is unlikely to be diminished, according to analysts. The greenback had benefited as investors flew to safety amid the pandemic, which drove it to a three-and-a-half year high in March. But now strategists say the country’s economic recovery is in question, given its weak coronavirus response. The dollar had also reacted to the country’s surging deficit and the prospect of U.S. interest rates remaining lower for longer.
- Once again, the US reported fewer than 1,000 deaths on Saturday (998 to be exact), the latest sign that projections calling for another virus-linked surge in US mortality were way off base. The US also confirmed 45,855 new cases on Saturday, matching the 0.8% daily average increase over the previous week. All of these data show that CDC Director Dr. Robert Redfield’s announcement late last week that the outbreak in the south was slowing, and that the American outbreak was solidly on a downward trajectory, was correct.
- In the US, both manufacturing and services PMI came in better than investor expectations for August.
- Existing home sales accelerated on a monthly basis in July.
- The yield on benchmark government bonds fell on Friday. The yield on 2026 bond dropped to 7.36%. Further, the yield on 2023 bond declined to 4.44%, while that for the longer-dated 2030 issue fell to 9.24%.
In early trade on Monday, the US dollar is trading 2.1% higher against the South African rand at R17.5225, while the euro is trading 2.9% higher at R20.8315. The British pound has gained 2.4% against the South African rand to trade at R23.0002.
By the close of trade on Friday, the euro mostly declined against most of the major currencies.
- The eurozone’s preliminary reading for both manufacturing and services dropped in August. In contrast, the region’s consumer confidence index slightly improved in August.
- NZ retail sales fell by 14.6% in the June quarter as Covid-19 dealt a blow to spending. Today’s result was below the forecasts. However, the surprise is not large in the context of the shock the economy has been wrestling with and only indicates limited risk to NZ broader forecasts.
- As Deutsche Bank wrote at the start of August, whereas vaccines normally require years of testing and additional time to produce at scale, amidst the Covid pandemic scientists are hoping to develop a coronavirus vaccine within an extremely truncated timeframe of only 12 to 18 months. The reason for that while normally a vaccine takes years to develop using a traditional process, with Covid things are far more accelerated.
- Effective unemployment in Australia will climb above 13% by the end of September, Treasurer Josh Frydenberg said on Sunday, as nearly half a million people lose their jobs due to a full lockdown of the country’s second most populous city. Releasing modelling from Australia’s Treasury Department, Frydenberg said effective unemployment totaled 9.9% at the end of July, down from the record high of 14% in April when large parts of the country’s economy were ordered to close to slow the spread of COVID-19.
In early trade on Monday, the euro has advanced 0.8% against the US dollar to trade at $1.1890, while it has gained 0.5% against the British pound to trade at GBP0.9056.
In closing this week the topic is “Navigating the Decade Ahead: Implications for Monetary Policy”, when central bankers meet up via Zoom to decide how to manipulate markets for the next decade. The Jackson Hole” conference is notoriously one of the potential policy-defining events of the year and this year will likely be no different, even if the market is already exhausted by the plethora of curve-killing measures announced during the Covid-19 crisis. Lets watch this space…
Spring is fast approaching have a great week ahead.