Archives of “July 2020” month

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New home sales, Markit PMI preliminary data to highlight releases today

  
  Analysis

Happy Friday

The economic calendar is fairly light today today. The highlight will be new home sales at 10 AM ET. Recall earlier this week the existing home sales which accounts for 90% of the housing market in the US rose to a annualized sales pace of 4.75 million from 3.91 million previously. That was good enough for a 21.4% gain. Supply remains a huge concern in the housing market. For the new sale market, builders reluctant to start new projects as a result of the pandemic. However, they too are rebounding in recent months.  The expectation is for a rises to 700 K from 676K last month.
In other economic releases the US market manufacturing index for the month of July (preliminary) will be released at 9:45 AM ET/1345 GMT. The expectation is for a rebound back above the 50.0 level. The  expectation is for a rises to 52.0.  Last month the index came in at 49.8.  The service PMI is also expected to rise to 51.0 from 47.9 last month
The Baker Hughes rig count will be released at 1 PM ET/1700 GMT. The oil rig count is expected to fall to 179 from 180 last week. The total rig count is expected to rise to 255 from 253 last week.
The focus will be on the equity markets. The various headlines from the economic relief package also be of interest.

Japan PM Abe: Current situation does not call for state of emergency declaration

  
  Analysis
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Comments by Japanese prime minister, Shinzo Abe

  • Coronavirus cases are rising, government is watching closely
It is clear that the virus situation across the country is not getting any better as the curve is steepening as the days go by. Japan reported a single day record of 980 new virus cases yesterday, with infections also picking up outside of Tokyo.
Japan
Osaka is reported to find 149 new cases today and that would be the daily record for the prefecture, with Tokyo having found another 260 new cases as reported earlier.
As much as the government insists that things are “under control”, you have to wonder where will they draw the line and say that they have made a mess of the situation.
Eventually, the fear of the virus spread in itself will take a toll on the economy – as much as the government wants to keep business activity running for as long as they can afford to. Unfortunately, that comes at the costs of people’s health and well being, and at worst lives.

UK July flash services PMI 56.6 vs 51.5 expected

  
Analysis, Economy

Latest data released by Markit/CIPS – 24 July 2020

  • Prior 47.7
  • Manufacturing PMI 53.6 vs 52.0 expected
  • Prior 50.1
  • Composite PMI 57.1 vs 51.7 expected
  • Prior 47.7

The easing of lockdown measures has spurred a solid upturn in UK business activity, but once again this just reaffirms that conditions here are much better than they were compared to the May to June period. Still, it is a positive takeaway nonetheless.

The bright side is that the recovery is headed in the right direction, but it remains to be seen how much of that can be sustained especially with the government’s furlough program set to end later in the year in October.
That will provide the real test of the UK’s economy mettle and provide a better reflection of the strength of this recovery in general.
Cable is inching slightly higher on the report, moving from 1.2730 to 1.2744 but I don’t think there is much to really chew at here. Markit notes that:

“The UK economy started the third quarter on a strong footing as business continued to reopen doors after the COVID-19 lockdown. The surge in business activity in July will fuel expectations that the economy will return to growth in the third quarter after having suffered the sharpest contraction in modern history during the second quarter.

“However, while the recession looks to have been brief, the scars are likely to be deep. Even with the July rebound there’s a long way to go before the output lost to the pandemic is regained and, while businesses grew more optimistic about the year ahead, a V-shaped recovery is by no means assured.

“New orders showed only a relatively small rise in July, indicating that demand remains worryingly low at many firms. Hence July saw yet another sharp cut to employment levels as increasing numbers of companies scaled back their operating capacity. Many households are therefore likely to remain cautious with respect to spending with the job market deteriorating.

“Furthermore, not only do many consumer-facing businesses remain especially hard-hit by the pandemic and ongoing social distancing, we remain very concerned about the extent to which the recovery could be smothered by a lack of postBrexit trade deals.

“July’s PMI represents a step in the right direction, but there is a mountain still to climb before a sustainable recovery is in sight.”

Eurozone July flash services PMI 55.1 vs 51.0 expected

  
Analysis, Economy

Latest data released by Markit – 24 July 2020

  • Prior 48.3
  • Manufacturing PMI 51.1 vs 50.1 expected
  • Prior 47.4
  • Composite PMI 54.8 vs 51.1 expected
  • Prior 48.5

Solid beats across the board as preempted by the French and German readings earlier. Both the services and composite prints are their highest in over 25 months. Even the manufacturing beat is the highest in 19 months.

This just reaffirms that euro area business activity returns to growth in July as lockdown restrictions are eased and conditions are faring better relative to May to June.
But as mentioned earlier, the real challenge will be to see how this recovery can stand as labour market conditions start to move towards standing on its own two feet later this year.

Markit notes that:

“Companies across the euro area reported an encouraging start to the third quarter, with output growing at the fastest rate for just over two years in July as lockdowns continued to ease and economies reopened. Demand also showed signs of reviving, helping curb the pace of job losses.

“The data add to signs that the economy should see a strong rebound after the unprecedented collapse in the second quarter.

“However, while the survey’s output measures hint at an initial v-shaped recovery, other indicators such as backlogs of work and employment warn of downside risks to the outlook.

“The concern is that the recovery could falter after this initial revival. Firms continue to reduce headcounts to a worrying degree, with many worried that underlying demand is insufficient to sustain the recent improvement in output. Demand needs to continue to recover in coming months, but the fear is that increased unemployment and damaged balance sheets, plus the need for ongoing social distancing, are likely to hamper the recovery.”

China says that US’ Chengdu staff harmed China’s national security interest

  
  Analysis

Comments by the Chinese foreign ministry

  • US’ Chengdu consulate diplomats must leave China in 30 days
  • US must close Chengdu consulate within 72 hours
  • US is totally responsible for current bilateral situation
ICYMI, China had ordered the US to close its Chengdu consulate earlier in the day. The ongoing tensions between the two are one of the reasons keeping risk trades more nervous since overnight trading. US futures are still seen down ~0.6% currently.

Yen continues to firm as Treasury yields fall further on the session

  
  Analysis

US 5-year yields fall to a record low of 0.255%

Meanwhile, 10-year yields are seen lower by 2 bps to 0.558% and that is weighing across yen pairs as the bond market is looking to make waves towards the end of the week.
As warned earlier, this is one spot to watch ahead of the weekend as a break below the floor of around 0.54% to 0.56% in 10-year yields could lead to a fresh wave of bids in the yen – especially if USD/JPY slips back under the 106.00 handle as well.

Chinese equities close sharply lower to end the week

  
Analysis, Global Indices

CSI 300 index fell by 4.4% in trading today

Meanwhile, the Shanghai Composite index also fell by 3.9% but despite the sharp drop in trading today, the weekly performance isn’t that bad for Chinese equities.

On the week, the CSI 300 index is down by 0.9% and from a technical perspective it managed to avoid a key break of recent technical support @ 4,485.82:
CSI 300

“What Buffett wouldn’t do”

  
Analysis, Education
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Warren Buffett (@WarrenBuffett) | TwitterInvesting:

  • Don’t be too fixated on daily moves in the stock market (from Berkshire letter published in 2014)
  • Don’t get excited about your investment gains when the market is climbing (1996)
  • Don’t be distracted by macroeconomic forecasts (2004)
  • Don’t limit yourself to just one industry (2008)
  • Don’t get taken by formulas (2009)
  • Don’t be short on cash when you need it most (2010)
  • Don’t wager against the U.S. and its economic potential (2015)

Management:

  • Don’t beat yourself up over wrong decisions; take responsibility for them (2001)
  • Don’t have mandatory retirement ages (1992)
  • “Don’t ask the barber whether you need a haircut” because the answer will be what’s best for the man with the scissors (1983)
  • Don’t dawdle (2006)
  • Don’t interfere with great managers (1994)
  • Don’t succumb to the attitudes that undermine businesses (2015)
  • Don’t be greedy about compensation, if you’re my successor (2015)

Last, Buffett advises “Don’t worry about my health” — because Berkshire’s future success is is tied to reinsurance lieutenant Ajit Jain. “Worry about his.” (2001)

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