Will official data show that the US recovery has stalled?
For weeks, the increase in coronavirus cases and deaths has raised questions about the strength of the U.S. economic recovery. As high-frequency indicators began to signal that business activity has stabilized or slowed down, the latest official reports suggest that the rebound has continued unabated.
The problem for investors relying on these government figures is that most of the data is from early to mid-June, as cases started to increase in states such as Florida, California, USA. Arizona and Texas.
This has made the numbers expected this week critical in judging whether a slowdown is actually happening. July payroll numbers will be released on Friday. Economists still generally expect an increase, even after an increase in initial jobless claims for two consecutive weeks. But forecasts vary widely, with some of those polled by Bloomberg predicting a contraction in the labor market.
“The general tone of the real-time data points that we are tracking is that labor market dynamics have slowed noticeably this month,” said Alexander Lin, economist at Bank of America. “The bad news is that the job trajectory is going to be a lot more bumpy in the future.”
Better-than-expected economic reports in May and June, alongside stimulus from the Federal Reserve and Congress, helped propel US stocks higher. They also pushed metrics like the Citigroup Economic Surprise Index – which measures the strength of data relative to estimates – to all-time highs.
Figures on auto sales, manufacturing, construction spending and consumer credit will provide new clues this week that the recovery is continuing. Eric Platt
How will Australian rate regulators react to deflation?
Policy makers at the Reserve Bank of Australia meet on Tuesday amid the first bout of deflation in 22 years.
A 0.3% year-over-year drop in consumer prices in the second quarter was largely due to one-off effects – particularly the Australian government’s decision in April to make childcare free as part of its response to the coronavirus crisis. But even removing these factors, inflation was surprisingly low and well below the RBA’s target of 2-3 percent.
The specter of deflation would add pressure on Philip Lowe, the RBA governor, to appear as accommodating as possible, Rabobank strategist Jane Foley said – although she believes announcements of new policy measures are unlikely.
In March, the RBA cut its main interest rate to 0.25%, a level Mr. Lowe previously said was the rate floor. He also turned to so-called control of the yield curve, promising to buy enough government bonds to set three-year borrowing costs at the same level.
A strong Australian dollar also helped create disinflationary pressures by lowering the price of imports. The currency, which tends to perform well when riskier assets recover, has been up about a quarter against the US dollar since hitting a low of US $ 0.57 in March.
“With the strength of the dollar and the data on inflation, it’s not a pretty picture,” Ms. Foley said. “It’s quite difficult for the RBA to counterbalance given that it has already ruled out negative interest rates, but Lowe could try to give some sort of clue that he doesn’t like the strength of the currency. Tommy Stubbington
Will the rebound in Chinese trade continue?
In June, as the United States and Europe continued to grapple with the economic effects of the pandemic, China’s exports and imports resumed growth. The continuation of this momentum will be revealed in the latest trade data released on Friday.
At first glance, the signs look promising. During the first and second 10-day periods of July, China’s eight major seaports experienced 1.5% and 4.5% annual growth in container traffic, respectively.
“This suggests that a downside shock is unlikely to happen,” said Larry Hu, economist at Macquarie Group.
Yet a prolonged recovery among China’s trading partners could derail the recovery in exports. Chinese factories have benefited from a spike in foreign demand for personal protective equipment and work-from-home devices. But the clamor for such products was cooling off, said Zhuang Bo, analyst at TS Lombard. “You don’t have to buy a laptop every month to work from home,” he said.
The import situation also appears to be weaker. The nation’s retail sales fell for the fifth consecutive month in June as consumers cut spending to weather the recession.
Imports of commodities could be a bright spot as Beijing ramps up its construction boom to support the economy. Zhuang expects double-digit growth in China’s infrastructure investment in the second half of the year, a boon for Australian iron ore and Chilean copper. Sun Yu