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Daily Brief

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Looking past the virus

99% harmless

Investors are making a determined effort to ignore a renewed upswing in the tragic Covid-19 pandemic. The World Health Organisation has reported record global daily infections. New South Wales has closed its border with Victoria. Yet Far Eastern share prices are higher, gold has gone nowhere for a fortnight and the safe-haven yen was Friday’s weakest performer.

However, US President Trump spent the weekend touting the progress against the virus, as cases in the US surge. He stated: “99% of coronavirus cases are totally harmless”. Trump was still basking in the reflected glory of Thursday’s US employment report, which came out a day early as a result of the seasonally-adjusted Independence Day holiday on 3 July. The President was terrifically proud of the 4.8 million jump in nonfarm payrolls, even though a net 14.6 million jobs still remain missing from the pre-pandemic tally.

The employment data helped the US dollar higher into the weekend. An 8% monthly rebound in US factory orders, which initially looked alright, was still smaller than forecast and so less helpful to the dollar. Erosion this morning has returned Cable to the level of early Thursday and the euro is a quarter of a US cent higher.

 

Treading water

Data from the UK on Friday were underwhelming. GfK’s provisional consumer confidence measure improved by just three points to -27. The services sector purchasing managers’ index was in line with expectations at 47.1. On average, sterling was unchanged on the day and it starts this morning 0.2% higher than a week ago.

GfK’s commentary was less gloomy than the number might have suggested: “Despite the backdrop of dire warnings… consumers appear to be slightly more confident.” As for the services PMI, it might have been three points south of breakeven but it was an impressive 18 points higher than a month earlier and helped the composite measure to achieve a similar scale of improvement from 30 to 47.7.

Euroland services PMIs on Friday were on average a touch better than Britain’s, with the pan-Eurozone composite at 48.5. Only France was in the growth zone, at 51.7. Germany managed 47.0. The equivalent Australian reading was 52.7, an 18-month high. It did not do much for the Aussie dollar, which is a scant two fifths of a cent higher.

 

Disinflation

On Saturday the European Central Bank President said the pandemic would have a long-term impact on the economy. She expects two years of downward pressure on prices, with monetary policy remaining loose.

Ahead of London’s opening this morning Germany reported a 29.3% annual fall in factory orders. Whilst it looked bad (well, it was bad) the number was a major improvement on the previous month’s -36.9% thanks to a 10.4% monthly rebound in orders. The story for Spanish industrial output was not dissimilar.

Other data this morning cover Euroland retail sales and investor confidence, and the UK construction PMI. After lunch came the US services and composite PMIs and the Bank of Canada’s Business Outlook Survey. Tonight’s rate statement from the Reserve Bank of Australia is not expected to result in any change to the 0.25% Cash Rate.

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