How fast is the European economy rebounding?
Investors will be able to read the progress of the economic recovery in Europe with Friday’s purchasing manager indices from analyst group IHS Markit.
Last month’s figures showed a substantial rebound for the eurozone but were nonetheless below the threshold of 50 that separates contraction from expansion. Most economists expect July figures to cross this line, but warn that the pace of progress should be slow.
“Since all the major economies in the euro area are now frozen, the direct marginal gain on economic activity resulting from the relaxation of social distancing measures is much smaller,” said Peter Schaffrik of RBC Capital Markets. “Moreover, in Germany, the severity of social distancing measures is now comparable to that of Sweden, implying that the easing of restrictions has likely stabilized this month.”
Christine Lagarde, the head of the European Central Bank, warned last week that the region’s nascent recovery was facing several threats, while the bank left interest rates on hold. Lagarde said “unusually high uncertainty” continues to dampen business and consumer spending.
In the UK, the dominant services sector is expected to follow a pickup in manufacturing and construction expansion in July.
Some analysts, however, have cautioned against over reading recent PMI data, since they have shown continued contraction at a time when economies are reopening.
“Beware that the uncertainty and noise of Covid outweighs the cross-data from actual activity surveys,” Bank of America economists said. Tommy Stubbington
Will the Chinese currency strengthen further?
China’s economic rebound after Covid-19 has increased the likelihood of further gains for the renminbi, which hit its highest level in four months against the US dollar in early July.
China surpassed analysts’ expectations last week to register 3.2% growth in gross domestic product in the second quarter, although the drop in retail sales seemed to scare stock investors. Still, the overall growth numbers have put the country on track to outperform other major economies this year, said Mike Kerley, portfolio manager at Janus Henderson Investors.
This should benefit the renminbi, which crossed the widely followed level of seven for a dollar at the start of the month and held up well. The pace and extent of the recovery in China indicates that these gains could be sustained, said Bipan Rai, head of foreign exchange strategy for CIBC.
On Monday, the People’s Bank of China will decide its key rate, which is expected to remain at 3.85%, according to Iris Pang, chief economist for Greater China at ING. “The recovery of the economy in June. . . should keep the PBoC monetary policy stance in a comfort zone, ”said Pang.
The currency could be helped by investors and analysts who turn negative the outlook for the dollar ahead of the November presidential elections in the United States. Analysts expect disputes between Washington and Beijing to escalate as the vote draws near, following increasingly hostile measures by both sides in recent weeks.
“China’s domestic fundamentals look increasingly solid,” said Zach Pandl, strategist at Goldman Sachs. “As a result, we believe the renminbi will participate in the overall weakness of the dollar.” Eva Szalay
Will silver continue to eclipse gold?
Silver saw a strong rally from its March lows, rising almost 60%. Its price gain even exceeded that of gold, which increased by about 23% over the same period.
Investors are now wondering if the metal’s price can break its September 2019 intraday high of $ 19.70 an ounce. It was trading at around $ 19.30 on Friday. Even if he does, he still has a long way to go to reach his record level of almost $ 50, set during a bottleneck in 2011.
Like gold, silver was boosted by strong investment demand, with yields on safe assets such as government bonds falling due to huge central bank asset purchase programs during the crisis. from Covid-19. This has made its great drawback as a financial asset – the fact that it provides no income – increasingly irrelevant.
According to Standard Chartered, silver-backed exchange-traded funds already purchased the equivalent of 1,209 tonnes of metal in July, bringing inflows since the start of the year to 6,663 tonnes. This exceeds the record 5,929 tonnes recorded in 2007.
Ole Hansen, head of commodity strategy at Saxo Bank, said the foundations for an “upward movement” are there as the US dollar is under pressure, real yields sink deeper into negative territory and industrial production data is improving.
Unlike gold, silver has a wide range of industrial uses, including clean energy technologies that are expected to benefit from increasing demand from manufacturers of electric cars and solar panels.
Hansen believes this is one of the reasons why the gold / silver ratio, which fell to a five-month low of 93.7, fell further. Neil Hume