· Dollar drifts toward worst Aug in 5 years; Abenomics outlook steadies yen
The dollar was poised to register a fourth straight monthly drop on Monday as investors bet on U.S. rates staying low for longer, while the yen steadied on the view that Japan’s next leader will stay the course on the ‘Abenomics’ economic revival program.
Chief Cabinet Secretary Yoshihide Suga, a long-time lieutenant of Shinzo Abe is in a favourable position, Japanese media reported, as he is expected to get the backing of important factions within his ruling party.
The yen eased by about 0.3% in Asia to 105.62 per dollar, having climbed as far as 104.195 on Friday in the wake of Abe’s resignation as prime minister for health reasons. Yen crosses also reeled in some of Friday’s leap.
Elsewhere trade was choppy as the boost to Asian currencies from a solid expansion in China’s service sector had begun to fade a bit.
Nevertheless, the Australian dollar touched a 21-month peak of $0.7381 and remains set to post a fifth straight monthly rise, its best streak in over a decade and a 34% gain from March’s trough.
The New Zealand dollar made a post-COVID high of $0.6749. China’s yuan hit a 14-month peak of 6.844 to the dollar in offshore trade as investors cheer the services growth rather than fretting about a stalled rebound in manufacturing.
The euro was steady at $1.1903 and sterling last sat at $1.3342.
Attention now turns to a handful of Federal Reserve officials due to speak through the week, beginning with Richard Clarida at 1300 GMT Monday, as they put more flesh on the bank’s new policy framework.
Against a basket of currencies the dollar drifted higher to 92.310 in Asia but is down 1.2% for the month. If sustained that would be its worst August in five years and make for the longest run of monthly losses since the summer of 2017.
· Jump in 30-year Treasury yield raises expectations of Fed purchases
Investors are raising expectations the Federal Reserve will act to tame an upturn in yields by expanding its purchases of long-dated Treasury bonds, after the U.S. central bank said it would allow inflation to run higher.
Yields on 30-year U.S. Treasury bonds US30YT=RR hit a two-month high on Friday. Rising yields are a potential problem for the Fed as they raise the cost of borrowing for companies and individuals and threaten economic growth.
The 30-year yield jumped 9.4 basis points on Thursday, and then jumped another 7.7 basis points on Friday to 1.577%, the highest since June 16. It had pared some of those gains late Friday afternoon.
Some investors said the central bank may need to address the possibility of buying longer-dated debt at its mid-September policy meeting, if not sooner. Investors had previously expected the Fed to introduce the policy by the end of the year.
The Fed has purchased nearly $2 trillion in Treasury debt since the start of the coronavirus pandemic - bringing its current holdings to roughly $4.36 trillion - in order to keep interest rates low and maintain market liquidity. The majority of those purchases have been in shorter-dated notes.
Some investors believe yields would have to move higher for the Fed to expand its purchases.
· Democrats oppose Trump Wisconsin visit, president says 'strength' only answer
Democrats said Donald Trump should not visit the Wisconsin city where protests erupted last week after a Black man was shot in the back by a white police officer, while the Republican president said “strength” was the only way to deal with unrest.
The Aug. 22 shooting of Jacob Blake in front of three of his children turned Kenosha, a mostly white city south of Milwaukee, into the latest flashpoint in a summer of U.S. demonstrations against police brutality and racism ahead of Trump’s November reelection bid.
Trump has taken a hard stand against the racial protests and the White House said he will visit the Midwestern city on Tuesday, raising concerns among Democrats that this may worsen the strife.
· U.S. coronavirus cases top six million as Midwest, schools face outbreaks
U.S. cases of the novel coronavirus surpassed six million on Sunday as many states in the Midwest reported increasing infections, according to a Reuters tally.
Many of the new cases in Iowa are in the counties that are home to the University of Iowa and Iowa State University, which are holding some in-person classes. Colleges and universities around the country have seen outbreaks after students returned to campus, forcing some to switch to online-only learning.
· Warren Buffett looks to Japan, takes 5% stakes in five biggest trading firms
Berkshire Hathaway Inc (BRKa.N) said it has acquired slightly more than 5% of the shares in five large Japanese companies, marking a departure for Chairman Warren Buffett as he looks outside the United States to bolster his conglomerate.
In a statement on Sunday, Buffett’s 90th birthday, Berkshire said it acquired its stakes in Itochu Corp (8001.T), Marubeni Corp (8002.T), Mitsubishi Corp (8058.T), Mitsui & Co Ltd (8031.T) and Sumitomo Corp (8053.T) over approximately 12 months.
Berkshire said it intends to hold the investments for the long term, and may boost its stakes to 9.9%. A Berkshire insurance business, National Indemnity Co, is holding the shares.
Taken together, five 5% stakes were worth 655 billion yen ($6.21 billion) as of Friday’s close, Reuters calculation showed based on Refinitiv data.
· China's factory activity expands at a slower pace in August: official PMI
China’s factory activity expanded at a slightly slower pace in August, missing analysts’ expectations, dragged lower by disruptions from floods and adding to risks for the world’s second-largest economy as it emerges from the coronavirus shock.
The official manufacturing Purchasing Manager’s Index (PMI) fell slightly to 51 in August from 51.1 in July, but remained above the 50-point mark that separates growth from contraction on a monthly basis.
Analysts had expected it to pick up slightly to 51.2.
China’s vast industrial sector is steadily returning to the levels seen before the pandemic paralysed huge swathes of the economy, as pent-up demand, stimulus-driven infrastructure expansion and surprisingly resilient exports propel a recovery, but the recovery remains uneven
· Growth in China's services sector accelerates in August: official PMI
Activity in China’s services sector expanded at a much faster pace in August, official data showed on Monday, as demand across the economy continues to recover from a coronavirus-induced slump.
The official non-manufacturing Purchasing Managers’ Index (PMI) rose to 55.2 from 54.2 in July, data from the National Bureau of Statistics (NBS) showed. The 50-point mark separates growth from contraction on a monthly basis.
China’s services sector, which includes many smaller, private companies, has been slower to recover from the health crisis than manufacturing, with heavy job losses, pay cuts and fears of a second wave of infections keeping consumers cautious.
The official August composite PMI, which includes both manufacturing and services activity, rose to 54.5 from July’s 54.1.
· China’s mega banks lost billions of dollars in profit as bad loans rise during coronavirus pandemic
China’s five largest banks reported their biggest profit declines in at least a decade as they brace for further increases in bad loans in an economy weakened by the coronavirus pandemic.
The five lenders — Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China and Bank of Communications — released their latest financial report cards last week.
All five posted at least 10% year-on-year declines in profit for the first half of 2020 as they set aside more funds for potential loan losses in the coming months — much like many banks around the world.
n a Sunday note, Morgan Stanley analysts pointed out that pre-provision operating profits of most mid-sized Chinese banks grew between 8% and 27% in the second quarter compared to a year ago. That’s better than that of the seven largest banks, which ranged between a decline of 2% and a growth of 6%, they added.
Still, analysts at Jefferies said in a note that Chinese banks are “highly likely” to cut dividends this year after setting aside more provisions. But with bank earnings likely to recover after hitting a bottom in the second half of this year, dividends could return in 2021, they said.
· Ailing Abe quits as Japan PM as COVID-19 slams economy, key goals unmet
Japan’s Shinzo Abe on Friday said he was resigning because of poor health, ending a tenure as the country’s longest-serving prime minister in which he sought to revive an economy stricken by deflation and push for a stronger military.
His abrupt departure triggers a leadership battle in his Liberal Democratic Party (LDP) over the next few weeks. The winner will likely stick to Abe’s reflationary “Abenomics” policies that had mixed results in resuscitating the world’s third-largest economy.
Despite the deepening concerns about his health, news of Abe’s resignation sent tremors through Tokyo financial markets. Japan’s main stock market, which has more than doubled under Abe, fell some 2% before recovering, while the yen rose on concerns of a return to deflation.
Japan's ruling LDP to hold leadership vote on September 14 to pick Abe successor: Jiji
· Japan's PM candidate Kishida cautious about cutting sales tax
Fumio Kishida, a senior Japanese ruling party official seen as among candidates to become next prime minister, on Monday voiced caution over the idea of cutting the sales tax rate to help the economy weather the hit from the coronavirus pandemic.
“The sales tax is a source of revenue to pay for Japan’s social welfare burden...,” Kishida told a television programme, when asked if he opposed cutting it from the current 10% rate.
“Cutting the tax rate would burden small and midsize companies with additional costs” such as adjusting their cashier systems to adapt to a new tax rate, he said
· Japan’s next leader faces a ‘difficult year,’ after longtime Prime Minister Abe’s sudden resignation
Whoever succeeds Shinzo Abe as Japan’s next prime minister is set for a “difficult year” ahead, Teneo Intelligence’s Tobias Harris told CNBC in an email.
The analyst said the next leader needs to address pressing, “significant issues” after Abe’s surprise resignation of long-standing incumbent on Friday.
Harris said that includes a “wide-open debate” about Japan’s national security strategy as well as new defense program guidelines and negotiations with the U.S. over host-nation support.
“The next prime minister will also either have to prepare to deal with a reelected Trump or the transition to a new US administration, either of which will occupy much of his or her attention,” the analyst said, referring to the U.S. presidential election in early November.
Still, Harris said Abe’s Liberal Democratic Party (LDP) will “likely move quickly to select a new leader to ensure stability and continuity” in a time when the country is hit by both recession as well the coronavirus pandemic.
· Japan's ruling party to hold September 14 leadership vote; four possible candidates for PM
Japan’s ruling Liberal Democratic Party plans to hold a leadership vote on Sept. 14 to replace Prime Minister Shinzo Abe, who is stepping down due to ill health, local media reported on Monday.
The new party leader will become the country’s next prime minister, due to the party’s parliamentary majority, with four possible candidates vying for the position.
Abe, Japan’s longest-serving premier, told U.S. President Donald Trump earlier on Monday that the strengthening of their two nations’ alliance would be maintained even after he leaves office, a Japanese government spokesman said.
But Abe’s successor will face a daunting list of economic, diplomatic and security issues, ranging from a stagnant economy hit by the coronavirus pandemic to China-U.S. tensions.
· Japan industrial output rises for second month but retail sales fall again
Japan’s factory output rose for a second straight month in July, signaling a gradual recovery from the blow delivered by the coronavirus pandemic.
But retail sales fell for a fifth straight month and at a somewhat faster pace, a worrying sign for private consumption, which accounts for more than half of the world’s third-largest economy.
Monday’s data underscored the fragility of an economy that suffered a record 27.8% contraction in the April-June quarter as the pandemic took a heavy toll on both domestic and external demand.
Ministry of Economy, Trade and Industry (METI) data showed Japan’s industrial output grew 8.0% in July from the previous month, versus economists’ median estimate of a 5.8% gain and following a 1.9% increase in June.
It was the second straight month of gains after having hit its lowest level in May since the global financial crisis. But factory activity is still far from pre-pandemic levels.
Manufacturers surveyed by METI expect output to increase 4.0% in August and grow 1.9% in September.
METI raised its assessment on industrial output, saying it was picking up.
Highlighting weak consumer demand, however, retail sales fell 2.8% year-on-year in July, worse than a 1.7% drop seen by economists in a Reuters poll and following a 1.2% drop in June.
· Brazil's Bolsonaro committed to austerity, says economy minister
Brazilian President Jair Bolsonaro is committed to austerity and favors fiscally responsible economic stimulus, Economy Minister Paulo Guedes said on Friday, at the end of a week that exposed divisions between the two men over public spending.
Speaking in an online event hosted by steel group Aco Brasil, Guedes said there is no division in the government but discussions between ministers is normal. The president has the final word, however, and he is on the side of fiscal responsibility, Guedes said.
· India records world’s biggest single-day jump in coronavirus cases
India registered 78,761 new coronavirus cases on Sunday, the biggest single-day spike in the world since the pandemic began, just as the government began easing restrictions to help the battered economy.
The surge raised India’s tally to over 3.5 million, and came as the government announced the reopening of the subway in New Delhi, the capital. It also will move ahead with limited sports and religious events next month.
A country of 1.4 billion people, India now has the fastest-growing daily coronavirus caseload of any country in the world, reporting more than 75,000 new cases for four straight days.
One of the reasons is testing: India now conducts nearly 1 million tests every day, compared with just 200,000 two months ago.
A significant feature of India’s Covid-19 management, however, is the growing rate of recovered patients. On Sunday, the recovery rate reached nearly 76.5%.
· Brent hits five-month high on Abu Dhabi supply cuts, China data
Oil rose on Monday, with Brent touching the highest in five months, underpinned by a 30% cut in Abu Dhabi crude supplies and encouraging Chinese data even as global demand struggles to return to pre-COVID levels in a well supplied market.
Brent crude futures for November LCOc1 advanced to $46.38 a barrel earlier, the highest since March, and was fetching $46.27 by 0656 GMT, up 46 cents, or 1%. U.S. West Texas Intermediate crude CLc1 was at $43.25 a barrel, up 28 cents, or 0.7%.
Brent is set to close out August with a fifth successive monthly price rise while WTI is on track for a fourth monthly gain, having hit a five-month high of $43.78 a barrel on Aug. 26 when Hurricane Laura struck.
Abu Dhabi National Oil Company told its customers on Monday that it will reduce October supplies by 30%, up from a 5% cut in September, as directed by the United Arab Emirates government to meet its commitment on the recent OPEC+ agreement.
Reference: CNBC, Reuters
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