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Trauma fatigue

US leader, USD laggard

The US dollar was the biggest loser for a second day on Friday, this time joined by the Japanese yen. Both were adversely affected by growing optimism about the global economy as lockdown is wound down. The dollar suffered individually as a result of weak domestic data and civil unrest.

American job losses continued to climb, with the domestic Covid-19 casualty list pushing above 106k. The death in police custody of African-American George Floyd sparked protests across the States which continued throughout the weekend. The US President was taken by the secret service into an underground White House bunker, tweeting, “Call in our great National Guard.” Investors were not convinced that such an approach would defuse the situation.

They were, however, relieved at the end of last week when Trump took what they saw as a rational approach to China’s new security measures in Honk Kong. He called an end to America’s special treatment of Hong Kong and “launched a blistering attack” on Beijing’s alleged misdeeds. However, he stopped short of escalating the trade war and targeting Chinese business or political leaders, which investors had feared. On Friday and so far this morning the dollar has been able to hold its line of defence against the euro at $1.1150, a two-month high. 

 

New normal

Investors are no longer shocked by the weakness of global economic data. Trauma fatigue makes them, if not immune to bad numbers, then certainly acclimatised to their inevitable appearance. The dire data continued to roll out on Thursday and Friday.

A 17.2% fall in US durable goods orders for April was probably the easiest of the tough numbers for investors to swallow. Coming on top of a downwardly-revised 16.6% fall in March the number “bolstered expectations that the coronavirus crisis will lead to the deepest economic contraction in the second quarter since the Great Depression”, a situation to which investors have been signed up for a couple of months.

Gross domestic product data from the States on Thursday and Canada on Friday were similarly unable to provoke anguish. Quarter-on-quarter shrinkage rates of 2.1% in Canada and 1.25% south of the border were taken by investors in their stride, despite the efforts of some analysts to jazz them up. Anyway, Italy’s 5.4% quarterly contraction made them both look good. The Loonie was unchanged against the euro and the pound on Friday.

 

Looking up

With a modicum of good fortune, this week’s round of purchasing managers’ indices should throw up better numbers than those at the beginning of last month. Australian manufacturing readings from AiG and Markit failed to confirm that optimism.

The AiG reading at 41.6, up from 35.8, was decent enough but manufacturing “remained in deep contraction”. Markit was fractionally lower on the month at 44, experiencing “a substantial deterioration” in May. Japan was steady at 38.4. There were improvements in China, where the Caixin manufacturing PMI rose from 49.4 to 50.7, Sweden with a three-point rise to 39.2 and Spain, which was seven and a half points higher at 39.3.

Britain is expected to confirm an eight-point improvement to 40.6. The US readings from ISM and Markit are forecast to be 43 and 39.8, the latter unchanged and the former a point and a half higher on the month.

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