Will official data show that the US recovery has stalled?

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Will official data show that the US recovery has stalled?

For weeks, rising coronavirus cases and deaths have raised questions over the strength of the US economic recovery. While high-frequency indicators have begun to signal that business activity has plateaued or slowed, the latest official reports suggest the rebound has continued unabated.

The problem for investors relying on those government figures is that much of the data was drawn from early- or mid-June, just as cases began to surge in states such as Florida, California, Arizona and Texas.

That has made the numbers due for release this week critical in judging whether a slowdown is indeed happening. Payroll numbers for July will be published on Friday. Economists still broadly expect an increase, even after a rise in initial jobless claims for two consecutive weeks. But forecasts vary greatly, with some of those polled by Bloomberg predicting a contraction in the jobs market.

“The general tone of the real-time data points we follow is that job market momentum slowed notably this month,” said Alexander Lin, an economist at Bank of America. “The bad news is that the jobs trajectory is going to be much bumpier going forward.”

Better than expected economic reports in May and June have, alongside stimulus from the Federal Reserve and Congress, helped propel US stocks higher. They have also pushed such indicators as the Citigroup Economic Surprise index — which measures the strength of data compared with estimates — near record highs.

Figures on motor sales, manufacturing activity, construction spending and consumer credit will this week offer further clues on whether the recovery remains on track. Eric Platt

How will Australia’s rate-setters respond to deflation?

Policymakers at the Reserve Bank of Australia meet on Tuesday against the backdrop of the first bout of deflation in 22 years. 

A 0.3 per cent year-on-year fall in consumer prices in the second quarter was largely down to one-off effects — particularly the Australian government’s move in April to make childcare free as part of its response to the coronavirus crisis. But even stripping out these factors, inflation was unexpectedly weak and far below the RBA’s 2 to 3 per cent target.

The spectre of deflation would add pressure on Philip Lowe, the RBA’s governor, to sound as dovish as possible, said Rabobank strategist Jane Foley — though she thinks announcements of new policy moves are unlikely.

The RBA in March cut its main interest rate to 0.25 per cent, a level Mr Lowe has previously said was the floor for rates. It also turned to so-called yield curve control, promising to buy enough government bonds to pin three-year borrowing costs at the same level.

A strong Australian dollar has also played a part in creating disinflationary pressures, by lowering the price of imports. The currency, which tends to perform well when riskier assets rally, is up about a quarter against the US dollar since hitting lows of US$0.57 in March.

“With the strong dollar and the inflation data it’s not a very pretty situation,” said Ms Foley. “It’s quite difficult for the RBA to counteract given they’ve already ruled out negative interest rates, but Lowe might try and give some sort of hint he doesn’t like the currency strength.” Tommy Stubbington

Will the rebound in China’s trade continue?

Back in June, as the US and Europe continued to struggle with the economic effects of the pandemic, China’s exports and imports returned to growth. Whether this momentum continues will be revealed in the latest trade data unveiled on Friday.

On the face of it, the signs look promising. In the first and second 10-day periods of July, China’s top eight seaports reported 1.5 per cent and 4.5 per cent year-on-year growth in container traffic, respectively.

“That suggests a downside shock is unlikely to happen,” said Larry Hu, an economist at Macquarie Group.

Yet a protracted 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 homeworking appliances. But the clamour for such products was cooling, said Zhuang Bo, an analyst at TS Lombard. “You don’t have to buy a laptop every month in order to work from home,” he said.

The picture for imports is also looking weaker. The nation’s retail sales fell for the fifth consecutive month in June as consumers cut back on spending to weather the downturn.

Commodity imports could be a bright spot as Beijing steps up its construction boom to support the economy. Mr Zhuang expects double-digit growth in China’s infrastructure investment over the second half of the year, a boon for Australian iron ore and Chilean copper. Sun Yu

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