While protests in the U.S. over the death of George Floyd and other police killings of black people continue, more than half of U.S. States have now established curfews because of the riots and lootings that have taken place, which are of course not positives, for example, in the context of the economic reopenings that are underway.
In the meantime, China has asked its state-owned firms to halt purchases of soybeans and pork from the United States after Washington has said it would eliminate special U.S. treatment for Hong Kong to punish Beijing. Reuters also reported that Beijing has taken its latest actions to evaluate the recent escalation in tensions between the U.S. and China.
President Donald Trump has said his administration would take steps to revoke Hong Kong's preferential treatment as a separate customs and travel territory apart from the rest of China, which would put Hong Kong on the same level as China for, for example, paying U.S. duties, Politico said.
In the context of all this, investors could do well taking note of the fact that the U.S. government is selling its property in one of the most exclusive neighborhoods in Hong Kong valued at HK$10 billion or USD $1.82 billion, the Singapore Business Times reported.
For investors it’s rather confusing to see that U.S. financial markets don’t seem to be affected, at least not for now, and that no real risk aversion can be seen because of these negative developments.
Interestingly, on Friday, Goldman Sachs informed that options contracts are pricing in a continued plunge in bank dividends through next year. Wells Fargo and Citigroup expect dividends to slide 65 percent and 44 percent respectively.
Business Insider writes that the options market seems convinced that the worst has yet to come by pricing 2021 dividends roughly 40 percent below their March 2020 levels.
Should banks cut their dividends as projected, investors could expect a wave of selling to tank their stock prices (!).
All this and much other things convince me to remain patient and wait for the crash that will come and “then” try to buy back in with, as things stand today, most located in the U.S, and still U.S. dollar denominated…
Besides all that, it’s also worth taking note that South Korean exports, which is considered as an important benchmark for global trade, continued to fall significantly in May, tumbling 23.7 percent year-on-year (Y/Y), after a 25.1 percent drop in April and compared with market consensus of a 22.1 percent fall. This was the third straight month of fall in overseas sales, as the coronavirus pandemic paralyzed the global economy and deteriorated demand. Sales of autos sank 54.1 percent.
From its side, Japan showed surprisingly strong corporate investment spending in the first quarter by 4.3 percent y/y in the first quarter, after a 3.5 percent cut in the previous quarter, which will undoubtedly lead to an upward revision of Japan’s GDP.
One of the problems with estimating GDP at a moment is that statistical agencies have to make assumptions about whole parts of the economy and that these assumptions may turn out to be inaccurate as seems to be the case in Japan (!). So, investors, please take care.
Today we got also various PMI manufacturing final releases.
The final data for the IHS Markit Eurozone Manufacturing PMI for May came in under the title “Eurozone manufacturing sector continues to contract sharply”. Chris Williamson, Chief Business Economist at IHS Markit commented “Headcounts continue to be cut at a rate not seen since the height of the global financial crisis in 2009. Prices charged for goods are meanwhile also still falling at a pace not exceeded over the past decade as manufacturers offer discounts to help clear warehouses of unsold stock. The labor market and profits could therefore deteriorate further in coming months, holding any recovery in check.”
The final data for the IHS Markit U.S. Manufacturing PMI for May came in under the title “Ongoing COVID-19 impact drags output down further in May”. Chris Williamson, Chief Business Economist at IHS Markit commented “There remains a high risk that any recovery will be frustratingly slow as ongoing social distancing measures, high unemployment, job insecurity and damaged balance sheets constrain consumer and business spending. The recovery will of course also fade quickly if virus infections start to rise again.”
The May 2020 Manufacturing ISM Report on Business PMI came in at 43.1 percent, up from 41.5 percent in April. Economic activity contracted in May at a level not seen since April 2009. The overall economy returned to expansion after one month of contraction.
Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.
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