On the run
The US dollar was on the run again on Friday, falling an average of 0.7% against the other major currencies. There was plenty for investors not to like in the United States, from the continuing spread of the tragic Covid-19 pandemic to the deteriorating relationship between Washington and Beijing.
Following the US administration’s closure of China’s consulate in Houston earlier in the week, China responded by ordering the closure of America’s consulate in Chengdu. Although neither office was exactly a cornerstone of diplomatic relations between the two countries, their closure does not bode well for international rapport.
As the casualty numbers rise, Congress is still undecided about the next fiscal stimulus package. The Republican Senate and White House are not of a single mind on how to replace – or not – the enhanced unemployment benefits which run out at the end of the week. The $3 trillion package approved by the Democratic House of Representatives in May has not received the approval of the Senate and so has gone nowhere. Instead there is an ideological battle between those who say that generous hand-outs discourage people from seeking work and others who believe there is no work to be found.
US still slowing
US economic data at the end of last week did not improve the position of the USD. Thursday’s weekly jobless claims numbers showed more than 1.4 million new claims, the first increase since April. Friday’s provisional purchasing managers’ index readings showed a sixth month of contraction in the services sector.
Markit’s US manufacturing PMI was a point and a half higher on the month and in the growth zone at 51.3. The Services PMI was also an improvement but at 49.6 it remained below the line at 50 which represents stagnation. The composite index was exactly on that line.
The US PMI numbers compared unfavourably with those from elsewhere. All of the readings from Australia and Europe were at (German manufacturing) or above (everywhere else) 50. For pan-Euroland the composite came in at 54.8, representing the “strongest growth for two years”. For Britain the composite reading at 57.1 was nearly nine points higher on the month, putting growth at a “five-year high”. Sterling moved higher but with no sense of urgency. It is all but unchanged on average and against the EUR, CHF and JPY as well as the AUD and NZD.
Today’s top billing goes to US durable goods orders for June. Durable goods orders present a notoriously difficult challenge to analysts. The consensus is that orders increased by 7.2% in June so the safest bet is that they didn’t.
Data this morning from Japan put the all-industry activity index at -3.5% with the coincident and leading indicators at 73.4 and 78.4. They were all weak numbers. Europe’s contributions will be euro zone money supply and German business confidence. The Dallas Fed’s manufacturing business index follows US durable goods orders.
With days to go before the current unemployment support programme comes to an end, the focus will be on Congress to see what the Senate can agree with the White House and whether the House will lend its support to the proposal. The Treasury Secretary is optimistic but Republicans in the Senate are said to be “close to revolt”.