· Safe-havens dollar, yen supported by fears of new pandemic wave
The U.S. dollar and Japanese yen strengthened on Thursday as concerns about a rise in new coronavirus cases underpinned demand for safe-haven currencies.
An index tracking the dollar against a basket of currencies was up 0.20% in New York morning trade to 97.267.
The dollar has strengthened in recent weeks as investors grappled with fears about the COVID-19 pandemic’s impact on economic growth. The Japanese yen was last 0.32% stronger at 106.66 , the highest since June 12, and close to the one-month high of 106.58 it rose to last week.
High-quality assets gained as risk assets like U.S. assets fell.
A surge in new coronavirus infections in several U.S. states and the imposition of travel curbs in Beijing to stop a new outbreak there have served as a reminder of the risks of reopening economic activity before a vaccine has been developed.
Also driving the demand for safe-haven assets on Thursday was U.S. data showing that a recovery in the labor market has plateaued.
The number of Americans filing for unemployment benefits fell last week, but the pace of decline appears to have stalled amid a second wave of layoffs as companies battle weak demand and fractured supply chains, supporting views that the economy faces a long and difficult recovery from the COVID-19 recession.
The euro was last 0.16% weaker against the greenback, at $1.122. The common currency has lost nearly 1% of its value in less than a week as investors questioned whether the European Union would be able to pass an ambitious stimulus plan proposed by the European Commission, given that some countries are opposed to handing out aid as grants.
· U.S. Fed's balance sheet shrinks for first time since February
The Federal Reserve’s assets shrank this week for the first time since February, reflecting a sharp drop in currency swaps with foreign central banks and a continued slackening in demand for other emergency credit facilities.
The Fed’s balance sheet - composed of assets ranging from U.S. Treasury bonds and mortgage-backed securities to loans to banks and state governments - fell to $7.14 trillion on June 17 from $7.22 trillion a week earlier, Fed data released on Thursday showed.
It was the first decline since the end of February, just before the Fed slashed interest rates to near zero and kicked a bevy of emergency credit facilities into overdrive to soften the economic blow from the coronavirus pandemic and the recession it has since triggered.
· U.S. recovery to be bumpy, muted, Fed's Kashkari says
With cases of Covid-19 likely to resurge, at least in some parts of the country, the U.S. economic recovery will be neither smooth nor strong, Minneapolis Federal Reserve Bank President Neel Kashkari said in remarks released Thursday.
“My base-case scenario is that we are going to continue to see peaks, second waves, etcetera, unfortunately, for the rest of the year, until we get to some form of effective therapy or some form of vaccine or very, very widespread testing, and we are not there yet,” Kashkari told the Rural Equitable Development Forum on Wednesday, a recording of which was released publicly on Thursday. He was referring to waves of infection by the novel coronavirus.
· Fed's Mester says it could take two years for economy to return to pre-Covid levels
It could take a year or two for the U.S. economy to return to levels seen before the pandemic, Cleveland Federal Reserve Bank President Loretta Mester said on Thursday.
Mester said she expects the economy to decline by 6% in 2020 and for the unemployment rate to remain elevated at around 9% at the end of this year. “We’re going to see the economy recovering, but to get back to pre-pandemic levels, it’s going to take another year or two,” Mester said during a virtual chat on Thursday.
The economic crisis caused by the coronavirus pandemic has not altered her expectations for long-term economic growth, which she expects will remain low at around 2%, she said.
· U.S. labor market improvement stalling; second wave of layoffs seen
The number of Americans filing for unemployment benefits fell last week, but the pace of decline has stalled amid a second wave of layoffs as companies battle weak demand and fractured supply chains, supporting views that the economy faces a long and difficult recovery from the COVID-19 recession.
Initial claims for state unemployment benefits fell 58,000 to a seasonally adjusted 1.508 million for the week ended June 13. Data for the prior week was revised to show 24,000 more applications received than previously reported, bringing the tally for that period to 1.566 million.
· Trump renews threat to cut ties with Beijing, a day after high-level U.S.-China talks
President Donald Trump on Thursday renewed his threat to cut ties with China, a day after his top diplomats held talks with Beijing and his trade representative said he did not consider decoupling the U.S. and Chinese economies a viable option.
The top U.S. diplomat for East Asia described U.S.-China relations as “tense” after their first high-level face-to-face diplomatic talks in months, although he said Beijing did recommit to the first part of a trade deal reached this year and that coming weeks would show if there had been progress.
Trump has made rebalancing the massive U.S. trade deficit with China a top priority, but relations have worsened steadily as his campaign for re-election in November heats up.
· UK PM to announce deals for 'air bridges' with few countries on June 29: Telegraph
British Prime Minister Boris Johnson is expected to announce on June 29 that agreements have been reached for air bridges with a “small number” countries with low levels of the coronavirus outbreak, the Daily Telegraph newspaper reported on Thursday.
UK ministers want to set up air bridges to nations seen as “most advantageous” to the UK economy like France, Spain, Greece and Portugal, the newspaper reported, citing sources.
The policy of air bridges is meant to enable people from other countries who have achieved lower levels of coronavirus infection to come to Britain.
· Slow UK recovery risks ballooning borrowing, IFS/Citi research shows
Britain’s government will still be borrowing vast sums of money five years from now if the economy takes time to recover from the coronavirus fallout, new research published on Friday showed.
The Institute for Fiscal Studies think tank and U.S. investment bank Citi said they thought it would take the economy “several years” to adjust to the pandemic, in contrast to scenarios from official forecasters showing a relatively swift rebound.
That would point to a budget deficit of around 130 billion pounds ($162 billion) - or 5% of GDP - in five years’ time, more than double the forecast published by the Office for Budget Responsibility (OBR) in March.
· UK consumer sentiment strongest since COVID lockdown began - GfK
British consumer sentiment recorded its biggest improvement in nearly four years this month as coronavirus lockdown restrictions eased, though it still remains far below its level at the start of this year, a survey showed on Friday.
The GfK consumer confidence index, Britain’s longest-running such survey, increased to its highest since March at -30, up from -36 in late May, which was the lowest reading since the depths of the financial crisis.
The improvement matches other data showing some recovery since economic output collapsed by an unprecedented 20% in April, when many businesses suspended operations, shops closed to the public and workers were told to stay home were possible.
· Colombia economy contracts 20% in April under coronavirus impact
Colombia’s economy contracted 20.06% in April versus the same month last year - its largest fall on record - as the country suffered the fallout of a national coronavirus lockdown, the government’s statistics agency said on Thursday.
President Ivan Duque declared an ongoing national quarantine to curb the spread of the disease in late March. Though some restrictions have recently been lifted, the lockdown is set to last until July 1.
The collapse of Colombia’s gross domestic product (GDP) in the fourth month of the year was much higher than the 4.9% drop seen in March, statistics agency DANE said.
The tertiary sector - made up of retail, public services, restaurants, bars, accommodation and transport - shrank 9.2%, the agency said. Tertiary economic activities overall account for some 67% of the economy.
· Oil gains 2% on OPEC+ output cut compliance
Oil prices rose on Thursday as a panel of OPEC and its allies met to review record oil supply cuts, even as the market remained concerned about additional coronavirus cases reported in parts of the United States and China.
Brent crude futures were up 78 cents at $41.48 a barrel and West Texas Intermediate crude futures gained 88 cents, or 2.32%, to settle at $38.84 per barrel.
· U.S. slaps sanctions on Mexican firms, individuals linked to Venezuelan oil trade
The United States on Thursday blacklisted Mexico’s Libre Abordo and a related company, accusing them of helping Caracas evade U.S. sanctions in the first formal action by the U.S. Treasury Department against Mexican firms involved in trading Venezuelan oil.
The Treasury said in a statement it imposed sanctions on three individuals, eight entities and two vessels for activities related to a network attempting to skirt U.S. sanctions on Venezuela aimed at ousting President Nicolas Maduro.
Mexico’s peso slumped 2% after the U.S. action.
Reference: CNBC, Reuters
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