Market Talk – June 1, 2020

Posted Jun 1, 2020 by Martin Armstrong |

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ASIA:

China’s official manufacturing PMI for May came in at 50.6, according to the country’s National Bureau of Statistics. A private survey released Monday also showed manufacturing activity in China unexpectedly expanding in May, with the Caixin/Markit manufacturing PMI coming in at 50.7 for that month. PMI readings above 50 signify expansion, while figures below the level represent contraction. Economists predict that among other markets in Asia, Vietnam and Taiwan could pull off a similar economic recovery.

China on Monday said that the overall situation at the border with India was “stable and controllable” and both the countries have “unimpeded” communication channels to resolve the issues through dialogue and consultations.

Indian states on Sunday began identifying high-risk zones where coronavirus lockdowns should continue while the rest of country gears up to reopen in June despite a record rise in COVID-19 cases, officials said. The central government has extended lockdown until June 30 in so-called containment zones that should remain under lockdown because they continue to report a high number of infections. But restaurants, malls, and religious buildings are permitted to reopen elsewhere from June 8 as India loosens the world’s longest lockdown to curb the spread of the pandemic. India has reported 182,000 confirmed COVID-19 cases, with 5,164 deaths.

Moody’s Investor Service on Monday downgraded India’s sovereign credit rating for the first time in more than two decades. Downgrading India’s rating by a notch to ‘Baa3’ from ‘Baa2’ assigned in November 2018, Moody’s estimated India’s GDP to shrink by 4%, first full fiscal contraction in more than four decades.

Apple Inc. is set to reopen its biggest stores in Japan from midday on Wednesday, bringing its physical retail network back online in one of its biggest markets. Japan has weathered the COVID-19 pandemic better than most countries, lifting its state of emergency in stages last month and bringing students in Tokyo back to school at the start of this week.

Singapore Airlines reported its first annual net loss of S$212 million in its 48-year history, after COVID-19 crippled travel demand. This compares with a S$683 million profit in the previous year. From Tuesday, travelers will be able to transit through Changi Airport, as Singapore gradually emerges from an almost two-month long “circuit breaker” period.

The major Asian stock markets had a green day today:

NIKKEI 225 increased 184.50 points or 0.84% to 22,062.39
Shanghai increased 63.08 points or 2.21% to 2,915.43
Hang Seng increased 771.05 points or 3.36% to 23,732.52
ASX 200 increased 63.50 points or 1.10% to 5,819.20
Kospi increased 35.48 points or 1.75% to 2,065.08
SENSEX increased 879.42 points or 2.71% to 33,303.52

The major Asian currency markets had a mixed day today:

AUDUSD increased 0.0127 or 1.91% to 0.67923
NZDUSD increased 0.00869 or 1.40% to 0.62914
USDJPY decreased 0.17 or -0.16% to 107.60
USDCNY decreased 0.0032 or -0.04% to 7.12904

Precious Metals:

Gold increased 12 USD/t oz. or 0.70% to 1,738.30
Silver increased 0.429 USD/t. oz or 2.40% to 18.2770

Some economic news from last night:

China:

Caixin Manufacturing PMI (May) increased from 49.4 to 50.7

Japan:

Capital Spending (YoY) (Q1) increased from -3.5% to 4.3%

Manufacturing PMI (May) decreased from 41.9 to 38.4

South Korea:

Exports (YoY) (May) increased from -24.3% to -23.7%

Imports (YoY) (May) decreased from -15.9% to -21.1%

Trade Balance (May) increased from -1.39B to 0.44B

Nikkei Manufacturing PMI (May) decreased from 41.6 to 41.3

Australia

MI Inflation Gauge (MoM) decreased from -0.1% to -1.2%

Manufacturing PMI decreased from 44.1 to 44.0

AIG Manufacturing Index (May) increased from 35.8 to 41.6

Some economic news from today:

India:

Nikkei Markit Manufacturing PMI (May) increased from 27.4 to 30.8

Hong kong:

Retail Sales (YoY) (Apr) increased from -42.0% to -36.1%

Australia:

Commodity Prices (YoY) decreased from -7.3% to -7.4%

EUROPE/EMEA:

The EU has concluded this week that the EU legally does not have to give the UK trade privileges after the Brexit transition period is over. Tomorrow we will see the fourth round of talks between the two via video conference, which is expected to last until Friday with both sides hoping to have more progress than previous rounds. The first two days will target the ongoing dispute regarding fisheries, with the latter days discussing trade in goods, services, and investments.

Large-scale protestors occurred after the orange vest protestors took to the streets of Milan and Rome, urging the Italian government to pull out of the Eurozone due to its ongoing handling of the coronavirus and general affairs. The main concern for business owners is the two months of shutdown have streched budgets to the limit, and with holiday season around the corner are demanding the restrictions are removed immediately. Italy is due to open its borders on the 3rd of June.

US President Trump said that the next G7 meeting, which is planned for next month, needs to be revised as he believes it does not represent the leading world powers. President Trump feels as if Russia, Australia, South Korea, and India should also be invited. However, Canadian PM Trudeau said that he would not extend an invitation to Russia.

The major Europe stock markets had a green day today:

CAC 40 increased 67.34 points or 1.43% to 4,762.78
FTSE 100 increased 89.82 points or 1.48% to 6,166.42
DAX 30 closed

The major Europe currency markets had a green day today:

EURUSD increased 0.00309 or 0.28% to 1.11319
GBPUSD increased 0.01525 or 1.24% to 1.24983
USDCHF increased 0.0010 or 0.10% to 0.9618

Some economic news from Europe today:

Spain:

Spanish Manufacturing PMI (May) increased from 30.8 to 38.3

Italy:

Italian Manufacturing PMI (May) increased from 31.1 to 45.4

France:

French Manufacturing PMI (May) increased from 31.5 to 40.6

Germany:

German Manufacturing PMI (May) increased from 34.5 to 36.6

Euro Zone:

Manufacturing PMI (May) increased from 33.4 to 39.4

UK:

Manufacturing PMI (May) increased from 32.6 to 40.7

US/AMERICAS:

Civil unrest spread across the United States this weekend in response to a police officer killing George Floyd, an unarmed African American civilian, earlier in the week. The peaceful protests turned into riots as protestors burned down buildings, looted stores, destroyed government buildings, and clashed with the police. The National Guard has been sent to Minneapolis and other cities where the police have been overpowered. Nearly 40 cities implemented curfews over the weekend to curtail the riots, and certain states closed down bridges to prevent riots from spreading.

Amnesty International, a human rights organization, urged the US to refrain from using “excessive force” as tear gas, rubber pellets, physical force, and pepper spray have been used against civilians. The Russian Embassy in the US also condemned the violence against civilians after a Russian reporter was pepper sprayed by a police officer despite showing his press credentials. President Trump declared ANTIFA (anti-fascists) a domestic terrorist group and sees the far-left as promoting civil unrest throughout the country.

Phase one of the China-US trade deal is in jeopardy after China reportedly told state-owned agencies to halt US agriculture purchases. “China has asked main state firms to suspend large scale purchases of major US farm products like soybeans and pork, in response to U.S. reaction to Hong Kong,” a source told Reuters. In addition to the US promoting Hong Kong independence, tensions have flared between the two countries in the wake of the coronavirus pandemic as the US plan to investigate China’s potential mishandling of the initial outbreak.

Manufacturing in the US contracted for the third consecutive month this May. May’s ISM reading of 43.1 was a uptick from April’s 11-year historic low of 41.5.

Brazil experienced a $4.5 billion trade surplus this May, according to data released by the Economy Ministry. Exports came to $17.9 billion, while imports totaled $13.4 billion. According to the ministry, the first five months of the year saw a -17.9% decrease in trade compared to the January-May period of 2019.

US Market Closings:

Dow advanced 91.91 points or 0.36% to 25,475.02
S&P 500 advanced 11.42 points or 0.38% to 3,055.73
Nasdaq advanced 62.18 points or 0.66% to 9,552.05
Russell 2000 advanced 11.34 points or 0.81% to 1,405.37

Canada Market Closings:

TSX Composite advanced 43.38 points or 0.29% to 15,236.21
TSX 60 advanced 2.6 points or 0.28% to 919.77

Brazil Market Closing:

Bovespa advanced 1,217.15 points or 1.39% to 88,620.10

ENERGY:

Report from oilprice.com suggests that only a 74% compliance from cuts discussed at the last OPEC meeting was met. Anticipation for another OPEC meeting this week helped push up the market slightly.

The oil markets had a mixed day today:

Crude Oil increased 0.18 USD/BBL or 0.51% to 35.6700
Brent increased 0.74 USD/BBL or 1.96% to 38.5800
Natural gas decreased 0.056 USD/MMBtu or -3.05% to 1.7830
Gasoline increased 0.0461 USD/GAL or 4.49% to 1.0720
Heating oil increased 0.0721 USD/GAL or 7.47% to 1.0368

The above data was collected around 15.16 EST on Monday.

Top commodity gainers: Heating Oil (7.47%), Steel (7.35%), Cotton (4.65%), and Bitumen (6.48%)
Top commodity losers: Natural Gas (-3.05%), Ethanol (-4.96%), Uranium (-26.36%), and Lean Hogs (-3.57%)

The above data was collected around 15.20 EST on Monday.

BONDS:

Japan 0.01%(+0bp), US 2’s 0.16% (+0bps), US 10’s 0.67%(+2bps); US 30’s 1.47%(+6bps), Bunds -0.41% (+4bp), France -0.03% (+5bp), Italy 1.49% (+0bp), Turkey 11.50% (-74bp), Greece 1.51% (-1bp), Portugal 0.51% (-2bp); Spain 0.58% (+1bp) and UK Gilts 0.22% (+4bp).