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Economy

UPDATE 2-German Bunds on course for worst week in a month

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr (Updates prices and adds chart)

By Yoruk Bahceli

AMSTERDAM, July 3 (Reuters) – Bunds were set to close their worst week in a month on Friday but analysts expect pressure to abate given uncertainty around the spread of the coronavirus and central bank support.

Ten-year German yields are up 4.5 basis points this week, set for their biggest weekly rise since the week ending June 5 .

They briefly rose to three-week highs on Thursday after a number of economic data releases surprised to the upside earlier in the week, though analysts said technical factors were key.

But Bunds managed to retrace some losses, and yields fell later on Thursday despite employment data proving better than expected in the euro zone and the United States, where a record number of jobs were created in June, buoying U.S. equities.

A boost to investor risk appetite would usually hurt safe-haven bonds.

“It is quite telling that core government bond yields did not manage to move higher on a day when a surprisingly positive U.S. labor market report was released,” UniCredit analysts told clients.

“This somehow underscores our firmly held view that UST (US Treasury) and Bund yields will have a hard time finding a way up over the next few weeks.”

ING analysts expect 10-year German yields to fall towards -0.50% in the short-term, citing the number of new coronavirus infections in the United States.

Bonds appeared to confirm those expectations on Friday, with Germany’s 10-year yield flat at -0.43%, while Italy’s 10-year yield was up 5 bps to 1.33%, off its lowest since late March hit earlier in the session.

The United States reported more than 55,000 new COVID-19 cases on Thursday, a new daily global record, as infections rose in most states.

The plunge in euro zone business activity eased sharply last month and was less than a preliminary reading as more businesses reopened, adding to a number of data releases that provided positive surprises in recent sessions.

Italy’s Treasury said on Friday it set the minimum annual coupon rates on a new 10-year “BTP Futura” bond targeted at retail investors, which step up with time, at 1.15%, 1.30% and 1.45%.

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Economy

Singapore's manufacturing PMI improves but fails to break out of contraction

SINGAPORE – Manufacturing conditions improved for a second month from the depths of the coronavirus-induced recession, but remained within contraction territory.

The June reading of the Purchasing Managers’ Index (PMI) came at 48 points, up 1.2 points from May, when it rose by 2.1 points. A PMI reading over 50 indicates expansion, while one below 50 shows contraction.

In April, the gauge of industrial activity had dropped to 44.7 – the lowest level since November 2008 during the global financial crisis.

Mr Irvin Seah, senior economist at DBS Bank, said on Friday (July 3) that the PMI report shows that the manufacturing sector will be one of the key drivers of economic recovery and will remain an outperformer this year despite the challenging outlook.

“That said, it will not be a smooth ride. The recovery will be uneven and not all manufacturing clusters will do well,” he noted.

The June PMI data marked the fifth month of contraction for the overall manufacturing sector, the Singapore Institute of Purchasing and Materials Management (SIPMM) said on Friday.

The electronics sector PMI rose 1.4 points from April to 47.6, also marking its fifth month of contraction.

“The June easing of Singapore’s circuit breaker measures in two phases has enabled more factory operations but weak global demand has held back growth in the manufacturing sectors,” said Ms Sophia Poh, vice-president industry engagement and development at SIPMM, which releases the monthly PMI data.

“Local manufacturers are concerned about the declining global demand arising from the pandemic controls and trade disputes of the major economies,” she added.

Key PMI sub-indexes that reflected improving conditions for a second month included new orders, new exports, factory output, employment and supplier deliveries. However, all continued to languish in contraction territory.

The inventory index expanded for the second month, whereas the finished goods index reverted to a contraction after expanding in the previous month.

Slower contractions were recorded for the indexes of imports, input prices, and order backlog. The overall employment index for the manufacturing sector has remained in contraction for the fifth consecutive month.

Ms Selena Ling, head of treasury research and strategy at OCBC bank, said Singapore’s PMI highlighted the variance in the pace of manufacturing sector’s recovery across Asia.

Similar reports this week showed that China, Malaysia and Vietnam are back in expansion territory, however, other economies remained mired in contraction despite some recent improvements, she said.

The transition to phase two of reopening on June 19 means more economic activities have resumed in Singapore.

Globally, more economies have reopened, hence supply chain disruptions are likely to be easing with time as well.

“However, the global demand shock remains and may have more persistent ramifications for the longer-term recovery trajectory,” Ms Ling said.

Mr Seah said the pull-back in both non-oil domestic exports and industrial production in May were reminders that the external environment remains challenging, and far less optimistic than what the financial markets are suggesting.

“Though we expect the PMI to recover to above 50 in the coming months, the upside will be curtailed by the subdued global economic conditions,” he added.

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Economy

Australia retail sales see record surge in May as economy reopens

SYDNEY (REUTERS)- Australian retail sales saw a record surge in May, official data showed on Friday (July 3), as a wide scale easing in coronavirus lockdowns allowed entire sectors to reopen, enabling a recovery from an historic plunge in April.

The strong bounce suggests consumer spending will not be nearly as weak as first feared in the June quarter, offering hope the economy can recover quickly from its first recession in three decades.

Retail sales jumped a seasonally adjusted 16.9 per cent in May, from April when it tumbled 17.7 per cent. Sales were also up over 5 per cent on May last year at A$28.97 billion (S$28 billion), according to the Australian Bureau of Statistics (ABS).

Australia eased lockdown restrictions in May as it successfully contained the spread of the virus and reopened its economy before many other advanced nations. The country has just over 8,000 coronavirus cases with 104 deaths.

Also in May, there was a massive month-on-month increase of 129.2 per cent in clothing, footwear and personal accessory retailing. Cafes, restaurants and takeaway food services saw a surge of 30.3 per cent, with both sectors coming off very low levels of trade in April.

Levels in clothing and footwear industries however remain well below the same time last year, the ABS reported.

The optimism since late April has also been reflected in credit card spending by major banks.

According to the Commonwealth Bank (CBA), card spending in the week to June 26 was up 4.5 per cent on a year ago after a 7.1 per cent lift for the week ended June 19.

Separate data from the Federal Chamber of Automotive Industries showed the slowest decline in new vehicle sales since the beginning of the Covid-19 crisis. New vehicle sales fell 6.4 per cent compared with June 2019, following double digit year-on-year declines in March, April and May.

Economists are keeping a close eye on the Reserve Bank of Australia’s (RBA) monthly policy meeting on Tuesday for any upgrades in forecasts ahead of its quarterly outlook due in August.

Read the latest on the Covid-19 situation in Singapore and beyond on our dedicated site here.

Get The Straits Times app and receive breaking news alerts and more. Download from the Apple App Store or Google Play Store now.

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Economy

U.S. adds 4.8 million jobs as unemployment falls to 11.1% – The Denver Post

WASHINGTON — U.S. employers added a substantial 4.8 million jobs in June, and the unemployment rate fell to 11.1%, as the job market improved for a second straight month yet still remained far short of regaining the colossal losses it suffered this spring.

The nation has now recovered roughly one-third of the 22 million jobs it lost to the pandemic recession. And with confirmed coronavirus cases spiking across the Sun Belt states, a range of evidence suggests that a job market recovery may be stalling. In those states and elsewhere, some restaurants, bars and other retailers that had re-opened are being forced to close again.

The re-closings are keeping layoffs elevated: The number of Americans who sought unemployment benefits barely fell last week to 1.47 million. Though that weekly figure has declined steadily since peaking in late March, it’s still more than double the pre-pandemic peak set in 1982. And the total number of people receiving jobless aid remains at a sizable 19 million.

California has re-closed bars, theaters and indoor restaurant dining across most of the state. Florida has also re-closed bars and beaches. Texas has reversed some of its efforts to reopen its economy. New York has paused its plans to allow indoor dining.

Credit and debit card data tracked by JPMorgan Chase show that consumers reduced their spending last week after having increased it steadily in late April and May. The reversal has occurred both in states that have reported surges in COVID-19 and in less affected states, said Jesse Edgerton, an economist at J.P. Morgan.

Nationwide, card spending fell nearly 13% last week compared with a year ago. That’s worse than the previous week, when year-over-year card spending had fallen just under 10%.

And Kronos, which produces time management software, has found that in the past two weeks, growth in the number of shifts worked has slowed in the Southeast and is now rising at just half the rate of the Northeast.

“The pace of recovery is starting to slow,” said Dave Gilbertson, an executive at Kronos. “We are expecting to see more of a plateauing over the next couple of months.”

Thursday’s jobs report is based on data gathered in the second week of June, which helps explain why the figures reflect an improving trend. Last week’s plateau in work shifts will instead affect the July jobs figures, to be released in early August.

McDonald’s has paused its reopening efforts nationwide, and Apple says it will re-close 30 more of its U.S. stores, on top of 47 that it had already shut down for a second time.

Economists have long warned that the economic benefits of allowing businesses to reopen would prove short-lived if the virus wasn’t brought under control. Until most Americans feel confident enough to dine out, travel, shop or congregate in groups without fear of infection, restaurants, hotels and retailers will lack enough customer demand to justify rehiring all their previous workers.

Still, some bright spots in the economy have emerged in recent weeks. Manufacturers expanded in June after three months of shrinking, the Institute for Supply Management, a trade group, said Wednesday. New orders are flowing in, and factories are adding more jobs, the ISM said.

And record-low mortgage rates are encouraging more home buyers. Purchases of new homes rose sharply in May. And a measure of signed contracts to buy existing homes soared by a record amount, a sign that sales should rebound after falling for three straight months.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story is below:

U.S. employers likely rehired several million more workers in June, thereby reducing a Depression-level unemployment rate, but the most up-to-date data suggests that a resurgent coronavirus will limit further gains.

Economists have forecast that businesses, governments and nonprofits added 3 million jobs — a record high — and that the unemployment rate fell a full percentage point to 12.3%, according to data provider FactSet. The predicted hiring gain would be up from 2.5 million jobs in May. Even so, the combined job growth for May and June would recover only a fraction of the 22 million jobs that were lost in March and April, when the virus forced business shutdowns and layoffs across the country.

And even a jobless rate above 10% wouldn’t fully capture the scope of the pandemic’s damage to the job market and the economy. Millions more people are working part time but would prefer full-time work. And an unusually high proportion of workers have been subject to pay cuts, research has found.

With confirmed coronavirus cases spiking across the Sun Belt, a range of evidence suggests that a nascent recovery is stalling. In states that are suffering the sharpest spikes in reported virus cases — Texas, Florida, Arizona and others — progress has reversed, with businesses closing again and workers losing jobs, in some cases for a second time.

On Wednesday, California re-closed down bars, theaters and indoor restaurant dining across most of the state. And Arizona’s outbreak grew more severe by nearly every measure. Florida has closed some beaches.

Credit and debit card data tracked by JPMorgan Chase show that consumers have slowed their spending in just the past week, after spending had risen steadily in late April and May. The reversal has occurred both in states that have seen surges in reported COVID cases and in less affected states, said Jesse Edgerton, an economist at J.P. Morgan.

Nationwide, card spending fell nearly 13% last week compared with a year ago. That was worse than the previous week, when year-over-year card spending had declined just under 10%.

Real-time data from Homebase, a provider of time-tracking software for small businesses, shows that the number of hours worked at its client companies has leveled off after having risen sharply in May and early June. Business re-openings have also flattened. The economic bounce produced by the initial lifting of shutdown orders may have run its course.

Still, Thursday’s jobs report will be based on data gathered in the second week of June, so it will still likely reflect an improving hiring trend. Last week’s plateau in hours worked will instead affect the July jobs figures, to be released in early August.

“Whatever picture the jobs report gives us, things have become worse since then,” said Julia Pollak, a labor economist at ZipRecruiter.

In addition to the renewed shutdowns across the Sun Belt, New York City has postponed plans to reopen indoor seating at restaurants in the face of more confirmed virus cases. Such moves are causing another round of layoffs or will limit future hiring.

McDonald’s has paused its reopening efforts nationwide. And Apple said it will re-close 30 more of its U.S. stores, on top of 47 it had already shut down for a second time.

Economists have long warned that the economic benefits of allowing businesses to reopen would prove short-lived if the virus wasn’t brought under control. Until most Americans feel confident enough to dine out, travel, shop or congregate in groups without fear of infection, restaurants, hotels and retailers won’t have enough demand to justify rehiring all their previous workers.

“The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus,” Federal Reserve Chair Jerome Powell told a House committee this week. “A full recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities.”

Still, some bright spots in the economy may emerge in Thursday’s jobs report. Manufacturers expanded in June after three months of shrinking, the Institute for Supply Management, a trade group, said Wednesday. New orders are flowing in and factories are adding more jobs, the ISM said.

And record-low mortgage rates are encouraging more home buyers. Purchases of new homes rose sharply in May. And a measure of signed contracts to buy existing homes soared by a record amount in May, a sign that sales should rebound after falling for three straight months.

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Economy

China joins Singapore-New Zealand initiative to keep supply chains open

SINGAPORE – China has pledged to uphold trade and supply chain connections during the coronavirus pandemic, Singapore’s Ministry for Trade and Industry said on Thursday (July 2).

The commitment to maintain cross-border flows of necessities was launched by Singapore and New Zealand in March. Since then several nations from across the world have joined the pact.

China is the 12th nation to ink the statement.

Other signatories include Australia, Brunei, Canada, Chile, Laos, Myanmar, Nauru, the United Arab Emirates and Uruguay.

The statement recognises that maintaining supply chains and trade flows amid disruptions caused by the pandemic is critical in enabling countries to emerge from the crisis stronger.

Signatories commit to refrain from imposing export controls or tariffs and non-tariff barriers and to remove existing trade restrictive measures on essential goods, especially medical supplies, during the virus outbreak.

Singapore Trade and Industry Minister Chan Chun Sing said; “We are encouraged that 12 countries are now on board. It sends a strong signal of our collective commitment to ensure the continuity and interconnectivity of supply chains during the Covid-19 pandemic.”

He added that Singapore along with other signatories to the pact would welcome other like-minded nations to join.

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Economy

PRESS DIGEST- New York Times business news – July 2

July 2 (Reuters) – The following are the top stories on the New York Times business pages. Reuters has not verified these stories and does not vouch for their accuracy.

– Boeing Co failed to share key information with regulators about flight control software aboard the 737 Max years before the software was implicated in two crashes that killed 346 people, according to a report by the U.S. Department of Transportation’s Office of Inspector General released on Wednesday. nyti.ms/2BVGpxB

– PG&E Corp, California’s largest utility, emerged from bankruptcy on Wednesday and put $5.4 billion in cash and 22.19 percent of its stock into a trust for victims of wildfires caused by the utility’s equipment. nyti.ms/2NOCzcw

– The U.S. House of Representatives agreed on Wednesday to extend for five weeks a popular pandemic relief loan program for small businesses, sending President Donald Trump legislation to give companies more time to apply for federal help under an initiative created by the stimulus law. nyti.ms/2NKxP7F

– Swiss drugmaker Novartis AG will pay $678 million to settle a fraud lawsuit, federal prosecutors in New York said on Wednesday. nyti.ms/2ZtqZsr (Compiled by Bengaluru newsroom)

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Economy

Britain's debt agency chief says don't rule out UK green bonds

LONDON, July 1 (Reuters) – The head of Britain’s debt management agency said on Wednesday that a discussion on UK green bonds was taking place and just because the country has not yet issued such a bond yet didn’t mean it would not happen.

Green bond issuance has risen sharply in recent years. Germany expected to issue its first green bond in September raising focus on what other prominent countries might follow suit.

Just “because we have not done one does not mean it won’t happen,” Robert Stheeman, Chief Executive of Britain’s debt management office said, during an online panel discussion on sovereign green bonds.

Speaking in the same web conference, Anthony Requin, chief executive at the Agence France Trésor, said that France would probably be in a position in 2021 to consider issuing new green bonds too. (Reporting by Dhara Ranasinghe; editing by Marc Jones)

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Economy

BOJ newcomer Nakamura says must 'respond early' to economic risks

TOKYO, July 1 (Reuters) – The Bank of Japan’s new board member Toyoaki Nakamura said on Wednesday the central bank must “respond early” to downside risks that could emerge from the coronavirus pandemic.

In his inaugural news conference, Nakamura also said Japan would not see inflation pick up sustainably unless economic conditions allowed for the central bank to abandon negative interest rates.

A former executive at electronics giant Hitachi, Nakamura joined the BOJ’s nine-member board on Wednesday, succeeding Yukitoshi Funo. (Reporting by Takahiko Wada, writing by Leika Kihara; Editing by Chris Gallagher)

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Economy

CEE MARKETS-Currencies gain as economic contraction seen slowing

    By Marton Dunai and Alan Charlish
    BUDAPEST/WARSAW, July 1 (Reuters) - Emerging European
currencies were mildly stronger on Wednesday amid indications
that the pace of the economic downturn was slowing, encouraging
investors after this year's coronavirus-induced shock.
    The downturn in central European manufacturing eased in June
as economies reopened after the coronavirus lockdown, purchasing
manager surveys showed on Wednesday, although the sector was
still contracting.
    "You can see that the economy is recovering and moods are
bouncing back from the bottom reached in April. Lifting the
lockdown also has a positive effect on moods in industry," said
Grzegorz Maliszewski, chief economist at Bank Millennium.
    The Czech crown continued to rebound, trading around 26.65
to the dollar after hitting a four-week low of 26.90 at the
start the week. 
    "The crown is starting to stabilise despite the further
spread of the pandemic," CSOB said, adding that the currency was
being helped by improving sentiment on equity markets. "The
currency pair is unlikely to try to test 27.00 EUR/CZK again."
    The Hungarian forint extended gains from Tuesday, recouping
some of its losses after last week's central bank decision to
cut rates. The bank also signalled of a further easing to offset
the economic impact of the coronavirus crisis.
    But a dealer in Budapest said forint trading was thin amid
portfolio adjustments in the middle of the year. "There is
little evidence to say the forint is recovering," he said.
    The Hungarian currency is still near an all-time low around
80 forints to the Polish zloty, he added.
    Stock market data was affected by a malfunctioning market
platform in Germany. Deutsche Boerse said the Frankfurt-based
electronic trading system Xetra had experienced a technical
issue that affected all securities traded on the platform.

    Financial data is listed below, omitting the usual stocks
data due to the Frankfurt technical issue:
    
            CEE        SNAPSHOT    AT  1012 CET                      
            MARKETS                                          
                       CURRENCIE                                     
                       S                                     
                       Latest     Previous         Daily     Change
                       bid        close            change    in 2020
 Czech                   26.6300          26.6580    +0.11%    -4.50%
 crown                                                       
 Hungary                353.9800         354.5900    +0.17%    -6.45%
 forint                                                      
 Polish                   4.4400           4.4449    +0.11%    -4.14%
 zloty                                                       
 Romanian                 4.8360           4.8380    +0.04%    -0.99%
 leu                                                         
 Croatian                 7.5645           7.5683    +0.05%    -1.57%
 kuna                                                        
 Serbian                117.5400         117.6000    +0.05%    +0.03%
 dinar                                                       
 Note:      calculated from                        1800 CET          
 daily                                                       
 change                                                      
                                                                     
                       Yield      Yield            Spread    Daily
                       (bid)      change           vs Bund   change
                                                             in
 Czech                                                       spread
 Republic                                                    
   2-year   <CZ2YT=RR     0.0930           0.0460   +078bps     +4bps
            >                                                
   5-year   <CZ5YT=RR     0.3240          -0.1390   +101bps    -15bps
            >                                                
   10-year  <CZ10YT=R     0.7790           0.0250   +122bps     +0bps
            R>                                               
 Poland                                                              
   2-year   <PL2YT=RR     0.1700           0.0000   +086bps     +0bps
            >                                                
   5-year   <PL5YT=RR     0.7620           0.0360   +145bps     +2bps
            >                                                
   10-year  <PL10YT=R     1.3990           0.0140   +184bps     -1bps
            R>                                               
            FORWARD                                                  
                       3x6        6x9              9x12      3M
                                                             interban
                                                             k
 Czech Rep          <       0.27             0.26      0.28      0.34
            PRIBOR=>                                         
 Hungary            <       0.63             0.59      0.57      0.74
            BUBOR=>                                          
 Poland             <       0.20             0.21      0.22      0.26
            WIBOR=>                                          
 Note: FRA  are for ask prices                                       
 quotes                                                      
 **********************************************************          
 ****                                                        
 
 (Additional reporting by Alicja Ptak in WARSAW, Jason Hovet in
PRAGUE; Editing by Edmund Blair)
  
 
 

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Economy

UPDATE 1-Pandemic must not stop move to scrap Libor, say regulators

(Adds more detail, Moody’s note)

By Huw Jones and Marc Jones

LONDON, July 1 (Reuters) – Disruption to markets caused by the COVID-19 pandemic must not stop banks from ending their use of the Libor interest rate benchmark by the end of 2021, the Financial Stability Board said on Wednesday.

Libor or London Interbank Offered Rate is used to help price contracts from mortgages to credit cards worth around $400 trillion globally.

Regulators want banks to use rates compiled by central banks after lenders were fined billions of dollars for trying to rig Libor.

“Libor transition remains an essential task that will strengthen the global financial system,” said the FSB, which coordinates financial rules for the Group of 20 Economies (G20).

The FSB will publish a report later this month on how to deal with remaining challenges to ending the use of a benchmark.

COVID-19 has highlighted that the underlying markets Libor seeks to measure are no longer sufficiently active, it said.

The most widely used Libor rates rose in March even though central banks were cutting their own interest rates to help mitigate the shock of COVID-19 to markets, the FSB said.

Credit rating agency Moody’s said in a report on Wednesday that without a transition plan, otherwise manageable issues such as increased costs and inadequate hedging, become more material and make it difficult to quantify risks.

“One possible result is that contractual obligations effectively convert to a fixed rate indefinitely by simply referring to the last published Libor after its withdrawal,” Moody’s said in a report.

The longer Libor transition issues go unresolved, the greater the likelihood of parties turning to the courts to resolve disputes, Moody’s said.

Despite consistently pushing to drop Libor, officials across markets have used the benchmark in some coronavirus-spurred relief lending schemes.

The U.S. Federal Reserve used Libor for its $600 billion Main Street Lending Program, citing feedback from potential participants that quickly implementing new systems to issue loans based on the Fed’s Sofr rate would require diverting resources from challenges related to the pandemic.

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