By Wayne Cole
SYDNEY (Reuters) – Asian share markets began the week with a cautious tone on Monday as the relentless spread of the coronavirus finally made investors question their optimism on the global economy, benefiting safe harbour bonds and the U.S. dollar.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.6% and further away from a four-month top hit last week. Japan’s Nikkei shed 1.3% and Chinese blue chips 0.6%.
In a more promising sign, E-Mini futures for the S&P 500 recouped their early losses to edge up 0.3% and EUROSTOXX 50 futures added 0.2%. FTSE futures dipped 0.2%.
Wall Street had faltered on Friday as some U.S. states reconsidered their reopening plans. The global death toll from COVID-19 reached half a million people on Sunday, according to a Reuters tally.
About one-quarter of all the deaths so far have been in the United States, with cases surging in a handful of southern and western states that reopened earlier.
“The increase in U.S. COVID-19 infection rates has dented momentum across markets despite the improvements in the global economy, which continues to beat most data expectations,” wrote analysts at JPMorgan in a note.
“Our strategists remain sanguine and recommend to buy on dips but also selectivity,” they added. “Traditional hedges like JPY vs USD, USD vs EM FX, gold and quality stocks are still outperforming this month. We stay overweight U.S. equities but move EM equities to neutral and stay neutral U.S. credit.”
Sovereign bonds benefited from the shift to safety with yields on U.S. 10-year notes falling to 0.64%, having briefly been as high as 0.96% early in June.
The U.S. dollar went the opposite direction, rising to 97.461 against a basket of currencies from a trough of 95.714 earlier in the month.
It was a shade higher on the yen at 107.20 on Monday, but well within the recent range of 106.06 to 107.63. The euro stood at $1.1240 having found solid support around $1.1167. [USD/]
It is an important week for U.S. data with the ISM manufacturing index on Wednesday and payrolls on Thursday, ahead of the Independence Day holiday. Federal Reserve Chair Jerome Powell is also testifying on Tuesday.
“U.S. economic data will reinforce that the economy is through the worst of the recession in our view,” said CBA currency analyst Joseph Capurso.
“But a double‑dip recession is possible if widespread restrictions are reimposed, leading to a surge in the dollar.”
In commodity markets, gold held near its highest since early 2012 at $1,771 an ounce. [GOL/]
Oil prices slipped amid concerns the pandemic would slow the reopening of some economies and thus hurt demand for fuel. [O/R]
Brent crude futures fell 70 cents to $40.32 a barrel, while U.S. crude lost 62 cents to $37.87.
Graphic: Asian stock markets https://product.datastream.com/dscharting/gateway.aspx?guid=516bc8cb-b44e-4346-bce3-06590d8e396b&action=REFRESH
(Editing by Sam Holmes)
China's economy rebounds in second quarter after steep slump, consumption and investment still weak – TheChronicleHerald.ca
By Kevin Yao and Gabriel Crossley
BEIJING (Reuters) – China’s economy returned to growth in the second-quarter after a deep slump at the start of the year, data showed on Thursday, as lockdown measures ended and policymakers stepped up stimulus steps to combat the shock from the coronavirus crisis.
The world’s second-largest economy grew 3.2% in the second-quarter from a year earlier, the National Bureau of Statistics said.
The growth was faster than the 2.5% forecast by analysts in a Reuters poll, and followed a steep 6.8% slump in the first quarter, the first such contraction since at least 1992 when quarterly gross domestic product (GDP) records began.
The economy contracted 1.6% in the first six months from a year earlier, the data showed.
The GDP numbers are being closely watched around the world, especially as many countries continue to grapple with the COVID-19 pandemic even as China has largely managed to contain the outbreak and has begun to restart its economic engines.
On a quarter-on-quarter basis, GDP jumped 11.5% in April-June, the National Bureau of Statistics said, compared with expectations for a 9.6% rise and a 10% decline in the previous quarter.
China’s economy, the first in the world to be jolted by the coronavirus pandemic, has been recovering slowly in the past two months, though the bounce from the virus-induced downturn has been uneven.
While the economy is showing a steady recovery, a hard battle still lies ahead as the situation remains severe both at home and abroad, state radio quoted Premier Li Keqiang as saying on Monday. [nL3N2EK2DQ]
Authorities are expected to maintain policy support in the second half, despite concerns over rising debt risks.
The government has rolled out a raft of measures, including more fiscal spending, tax relief and cuts in lending rates and banks’ reserve requirements to revive the coronavirus-ravaged economy and support employment.
Rising coronavirus infections in some countries, including the United States, have overshadowed improved demand for Chinese exports while heavy domestic job losses and lingering health concerns have kept consumers cautious.
China’s industrial output rose 4.8% in June from a year earlier, the data showed, quickening from a 4.4% rise in May. That marked the third straight month of growth for the vast sector, offering some relief to the economy as it tries to regain its footing.
But consumption remains weak, with retail sales down 1.8% on-year – the fifth straight month of decline and much worse than a predicted 0.3% growth, after a 2.8% drop in May.
Fixed asset investment fell 3.1% in the first half of the year from the same period last year, compared with a forecast 3.3% fall and a 6.3% decline in the first five months of the year.
(Reporting by Kevin Yao, additional reporting by Stella Qiu and Yawen Chen; Editing by Shri Navaratnam)
The worst may be over for Canada's economy, but we're still a long way from business as usual – Toronto Star
We are entering the euphoria stage of the pandemic economy — surging on a sugar high after a deep, dark shutdown, but only in a temporary way before the long slog to total recovery.
The Bank of Canada has at last published a “central scenario” for what the future holds, and while it’s not quite the full forecast we’ve been waiting for, its analysis is telling and will demand some fresh strategies to handle what lies ahead.
Yes, Canada is past the worst of it, the central bank says. And now, we’re heading into a period of rapid growth as some of the pandemic restrictions come off.
But that bounce back to life will soon be exposed as a troubled recuperation that is unique by historical standards — held back by fear, uncertainty and persistent weakness in the service industries that normally carry us out of a recession.
We won’t really taste full recovery until well into 2022, and even that distant date depends on the availability of a vaccine or treatment. Along the way, many companies will go under, investments will be cancelled or reoriented, workers will need to find new jobs, and the ability of the Canadian economy to hum along as usual will be permanently damaged.
The implications for business, workers and policy-makers alike are ominous. We will have to think very differently about how we work, how we spend as consumers and as governments, how we tax and how we train for the future.
A few key numbers: The bank believes Canada’s economy contracted by almost 15 per cent this spring. April was the nadir, and we began to stabilize in May and June. Now, supported by the federal wage subsidy and the lifting of some pandemic restrictions, companies are hiring workers back and revving up their businesses. By the time we get to the fall, about 40 per cent of the plunge will have been reversed, the bank predicts.
But what about the other 60 per cent? It will take two more years — if all goes as planned and there’s no broad second wave of the virus here or abroad.
The long hangover will be due in part to a couple of intangible factors: Fear of catching COVID-19 will keep many shoppers and workers sheltered at home, and uncertainty about losing jobs will prevent consumers from spending their savings or investing in new ventures.
And as long as virus-related restrictions remain in place, some key service-oriented areas of the economy will continue to limp along. Think hotels, the travel industry, retail and food services. Traditionally, those service-oriented sections lead the way to recovery. This time, they’re being hit repeatedly by ever-changing rules that will have to intensify at a local level every time there’s an outbreak of COVID-19.
In the meantime, since the United States is having such a hard time with controlling the spread of the virus, its recovery will happen in fits and starts, and the economic consequences will wash over the border into Canada, warns the central bank’s new governor, Tiff Macklem.
How do we come to terms with this?
The Canadian Chamber of Commerce has teamed up with Statistics Canada to figure out exactly where employers and companies are at right now, and they’ve found that government supports have been working somewhat. The wage subsidy has helped about 22 per cent of businesses stay afloat and keep at least part of their workforce active. More than a million people have gone back to work, and many more have resumed normal hours.
But that rehiring activity seems to be plateauing now, even as there are still millions out of work or working less than usual, the Chamber numbers show, because many companies don’t have the revenues coming in to warrant a complete rehiring of their workforce. About eight per cent will face closure or staffing cuts within three months unless things improve, and that rises to 20 per cent over six months.
“It’s very fragile,” says Patrick Gill, the chamber’s senior director of tax and financial policy.
He was glad to hear the Bank of Canada say it would keep its low interest rates and accommodating monetary policy in place for the long haul. But Ottawa needs to be a lot more creative than that, he adds.
If the federal government makes its wage subsidy more flexible, extends and enhances its commercial rent supports and thinks about what kind tax policies could be applied to encourage investment, businesses will find it easier to function on a day-to-day basis, he says.
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An ample supply of personal protective equipment, and clear rules on when to wear a mask will also help.
The central bank has promised to be on hand with whatever it takes until there’s full recovery, but it will need the help of the federal government, business leaders and workers themselves too.
Business as usual is not in the offing, despite the fleeting joy we may feel as we are allowed once again to open our front doors.
Fed survey says economy has picked up but outlook cloudy – CKPGToday.ca
The information in the report will provide guidance for Fed officials at their next meeting on July 28-29. Economists expect the central bank to keep its benchmark interest rate at a record low as it tries to cushion the economy from the pandemic downturn.
The Beige Book found only modest signs of improvement in most areas, noting that consumer spending had picked up as many nonessential businesses were allowed to reopen, helping to boost retail sales in all 12 Fed districts but construction remained subdued.
Manufacturing activity moved up, the report said, ’but from a very low level.”
The economy entered a recession in February, ending a nearly 11-year long economic expansion, the longest in U.S. history. Millions of people were thrown out of work and while 7.3 million jobs were created in May and June that represented only about one-third of the jobs lost in March and April.
And now, in recent weeks with virus cases surging in many states, there are concerns that the fledgling recovery could be in danger of stalling out.
The Beige Book reported that employment had increased in almost all districts in the latest survey, which was based on responses received by July 6, but layoffs had continued as well.
“Contacts in nearly every district noted difficulty in bringing back workers because of health and safety concerns, child care needs and generous unemployment insurance benefits,” the Fed said.
The report said that many businesses who had been able to retain workers because of the government’s Paycheck Protection Program said they might still be forced to lay off staff if their businesses do not see a pickup in demand.
The Fed in March cut its benchmark interest rate to a record low of 0 to 0.25% and purchased billions of dollars of Treasury and mortgage-backed bonds to stabilize financial markets.
But Fed officials have recently expressed concerns that a resurgence of the virus in many states may require more support from the central bank and from Congress.
Fed board member Lael Brainard said in a speech Tuesday that the economy was likely to “face headwinds for some time” and that continued support from the government will remain “vital.”
The Trump administration has said it plans to negotiate another support package once Congress returns from recess next week. Republicans and Democrats remain far apart on what should be in the new package with Democrats pushing for a package of around $3 trillion while GOP lawmakers have called for smaller support of around $1 trillion.
Congress will only have two weeks to reach a compromise before two of the most popular programs providing paycheque protection for workers and expanded unemployment benefits expire. The unemployment support provided an extra $600 per week but many Republicans say that amount was too high and kept some people from returning to work
Martin Crutsinger, The Associated Press
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