Japan was hit by its biggest economic slump on record in the second quarter as the coronavirus pandemic emptied shopping malls and crushed demand for cars and other exports. The third straight quarter of declines knocked the size of real gross domestic product to decade-low levels, wiping out the benefits brought by Prime Minister Shinzo Abe’s policies, widely known as “Abenomics”, which were implemented in late 2012. The world’s third-largest economy shrank an annualised 27.8% in April-June, the biggest decline since 1980, bigger that of the UK and the EU but smaller than the 32.9% GDP fall of the US. The yen fell against both the US dollar and the euro but not as much as initially feared helped by its safe-haven status.
Weak data and uncertainty ahead of a week that includes Federal Reserve minutes and the Democrats’ nomination convention had investors step back as many expect FED to adopt an average inflation target, which would seek to push inflation above 2% for some time to make up for the time it has run below it. The United States and China postponed a Saturday review of their Phase 1 trade deal meaning trade will continue to flow for the time being without any changes.
The dollar slipped marginally and commodity currencies inched higher this morning after the US-China trade pact review was delayed. The risk-sensitive Australian dollar touched a week high of just below 72 cents, changing hands on the higher end of the channel it has traded in for a week. The oil-sensitive Canadian dollar also edged higher to C$1.3241 per USD. Early in the Asian afternoon the euro was 0.1% higher on the dollar but it backtracked after data showed the daily Covid-19 infections are increasing in France and Italy. Sterling was little moved as it traded just below $1.31. The Swiss Franc continued its rally against the greenback started last month as USDCHF fell for the fifth consecutive session taking the main stage as investors step back from the US dollar and the yen.
The UK housing market saw a surge in activity last month as Londoners sought to flee the city after lockdown and a tax break encouraged buyers. Britons bought and sold a record number of homes between mid-July and early August. Prices hit unseasonal record highs in seven regions, but a drop in London pulled down the national average to a 0.2% decline. The demand for properties outside the big cities could get even stronger in the coming months as almost two-thirds of British businesses expect all or some of their employees to work remotely for the next year. Data from the Bank of England the tax break on moving home, showed a similar picture with a sharp increase in demand for mortgages. Meanwhile, Britain said it would step up demands for the United States to drop tariffs on goods such as single malt Scotch whisky after the industry warned a decision by Washington to retain the levy was putting its future at risk. London’s FTSE 100 index rose for the first time in three sessions this morning as higher commodity prices powered mining stocks.