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Business

Ireland wins euro zone's top job in blow to high-indebted nations

  • The European Commission downgraded its economic forecasts for the region earlier this week, and now expects the euro zone to contract 8.7% in 2020.
  • The International Monetary Fund, meanwhile, said in June that the 19-member region could shrink by 10.2% this year.

The Irish finance minister has been elected to the euro zone's top position, in a defeat for Germany and France, as well as the highest-indebted nations in the region.

Paschal Donoghoe will be the new president of the Eurogroup, which is made up of the 19 finance ministers of the euro area in charge of negotiating aspects of fiscal policy in the bloc.

The decision announced Thursday evening was a blow to France and Germany, who had publicly stated their support for Spanish candidate Nadia Calvino. The most-indebted nations in the region — Greece, Italy and Portugal — had also expressed their preference for the Spanish minister.

"Pressure for fiscal adjustment will likely resume once the recovery takes hold, creating the risk that more vulnerable Southern economies could be forced into fresh tightening at a time when their economies are still reeling from the downturn," analysts at research firm Eurasia Group said in a note.

Paschal Donoghoe, who will start the new role on Monday, has made it clear that the euro area will have to work towards reinstating fiscal targets.

Back in March, the euro area agreed to put these rules on hold so countries would have the flexibility to spend and support their own economies in the face of the coronavirus crisis.

Speaking to CNBC last week, Donoghoe said that reinstating fiscal targets "was not imminent," but the region had to monitor the economic developments and adapt to the situation.

The Irish finance minister has described himself as a "bridge builder," who will look to bring together the fiscally conservative nations, like the Netherlands and Austria, and those that have a looser approach to public finances.

"Building and maintaining consensus on both issues will be challenging, given the uneven shape the recovery is likely to take in Europe," Eurasia Group analysts added.

The European Commission downgraded its economic forecasts for the region earlier this week, and now expects the euro zone to contract 8.7% in 2020. The International Monetary Fund, meanwhile, said in June that the 19-member region could shrink by 10.2% this year.

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Economy

German Industrial Output Rises For First Time In 3 Months

After lockdown restrictions were eased, Germany’s industrial production grew for the first time in three months in May, suggesting that the economy started to recover from the unprecedented downturn caused by the coronavirus pandemic.

Industrial output grew 7.8 percent on a monthly basis in May, in contrast to a revised 17.5 percent fall in April, data released by Destatis revealed Tuesday. Production was forecast to grow 10 percent in May.

On a yearly basis, industrial production declined 19.3 percent versus a revised 25 percent decrease in April.

The economy ministry said industrial production is likely to have bottomed out, but despite the recovery in May, capacities remain underutilized.

The increase in incoming orders indicates a further increase in production in the coming months. However, the development of foreign demand remains a risk for the further recovery, the ministry observed.

Carsten Brzeski, an ING economist said data suggests that the return to normality will not be easy. Monthly economic data will surge but it will need more than one or two surges to bring economies back to their pre-crisis levels, he added.

Excluding energy and construction, industrial production was up 10.3 percent in May.

Energy production gained 1.7 percent in May and construction output grew 0.5 percent.

Within industry, intermediate goods output dropped 0.1 percent, while consumer goods and capital goods production advanced 1.4 percent and 27.6 percent, respectively.

Destatis said the production in the automotive industry increased markedly in May, after a very low level in April 2020. However, it was still by just under 50 percent lower than in February 2020.

Data released on Monday showed that factory orders advanced 10.4 percent month-on-month in May, which was the first increase in four months.

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Markets

Futures Fall With Europe Stocks on Economy Jitters: Markets Wrap

U.S. futures dropped with global stocks as European officials warned the economy will take longer to recover and Germany reported weaker-than-expected industrial data. The dollar advanced.

Airline shares led losses in U.S. pre-market trading. All but one of the 19 industry groups in the Stoxx Europe 600 Index fell, with real estate and technology shares bearing the brunt of the selling. Bayer AG lost 5.5% after its plan for handling future Roundup cancer claims hit a snag.

Most Asian shares dropped, though Chinese stocks powered ahead for a sixth day, although at a slower pace. Iron ore futures jumped and the offshore yuan briefly strengthened through the 7 per dollar level for the first time since March.

Investors are catching their breath after a ferocious rally that pushed the Nasdaq Composite to a record high. While recent reports show that global economy could be past the worst of the slump, it’s a long road back to pre-crisis levels.

The European Commission gave its starkest warning yet about the impact of the pandemic, with the divergences between richer and poorer countries opening up even further than projected two months ago. Officials now forecast a contraction of 8.7% in the euro area this year, a full percentage point deeper than previously predicted.

German Industry Rebounds From Virus Nadir Facing Long Road Ahead

Here are some key events coming up:

  • The EIA crude oil inventory report comes Wednesday.
  • All eyes will be on the U.S. weekly jobless claims report on Thursday.
  • Singapore holds its general election on Friday.
  • Rate decisions in Australia and Malaysia Tuesday.

These are the main moves in markets:

Stocks

  • Futures on the S&P 500 Index declined 0.7% as of 7:19 a.m. New York time.
  • The Stoxx Europe 600 Index sank 0.8%.
  • The MSCI Asia Pacific Index decreased 0.7%.
  • The MSCI Emerging Market Index decreased 0.6%.

Currencies

  • The Bloomberg Dollar Spot Index jumped 0.3%.
  • The euro decreased 0.2% to $1.1286.
  • The British pound increased 0.1% to $1.251.
  • The onshore yuan weakened 0.1% to 7.024 per dollar.
  • The Japanese yen weakened 0.3% to 107.68 per dollar.

Bonds

  • The yield on 10-year Treasuries was unchanged at 0.68%.
  • The yield on two-year Treasuries increased less than one basis point to 0.16%.
  • Germany’s 10-year yield jumped one basis point to -0.42%.
  • Britain’s 10-year yield dipped less than one basis point to 0.199%.
  • Japan’s 10-year yield rose one basis point to 0.046%.

Commodities

  • West Texas Intermediate crude fell 1% to $40.21 a barrel.
  • Brent crude fell 0.8% to $42.75 a barrel.
  • Gold weakened 0.5% to $1,776.11 an ounce.

— With assistance by Cormac Mullen

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Business

Asian Markets In Negative Territory

Asian stock markets are in negative territory on Thursday following the overnight sell-off on Wall Street as the spiking number of new coronavirus cases in several U.S. states dashed hopes of a quick economic recovery.

Adding to worries, the International Monetary Fund or IMF forecast a deeper recession for this year, saying it now expects the global economy to shrink by 4.9 percent in 2020, compared to a 3 percent contraction projected earlier.

The Australian market is declining, with the benchmark S&P/ASX 200 Index losing 73.40 points or 1.23 percent to 5,892.30, after touching a low of 5,856.70 earlier. The broader All Ordinaries Index is lower by 74.10 points or 1.22 percent to 6,007.50. Australian stocks closed modestly higher on Wednesday.

Among the major miners, BHP and Fortescue Metals are declining more than 1 percent each, while Rio Tinto is down almost 1 percent.

Gold miners are also weak as gold prices declined overnight. Evolution Mining is losing more than 2 percent and Newcrest Mining is lower by more than 1 percent.

The big four banks – Westpac, National Australia Bank, ANZ Banking and Commonwealth Bank – are lower in a range of 1.2 percent to 2.1 percent.

Oil stocks are lower after crude oil prices tumbled overnight. Oil Search is falling more than 3 percent, while Woodside Petroleum and Santos are losing more than 2 percent each.

Qantas Airways said it will cut at least 6,000 jobs and stand down 15,000 employees as part of a restructuring plan due to the COVID-19 pandemic and it also plans to raise A$1.9 billion through a share sale. The airline’s shares are in a trading halt ahead of the share sale.

Digital employment platform SEEK said that online job advertisements on its platform increased by 21.9 percent for the fortnight ended June 21. The company’s shares are lower by almost 1 percent.

In the currency market, the Australian dollar is lower against the U.S. dollar on Thursday. The local unit was quoted at $0.6855, compared to $0.6941 on Wednesday.

The Japanese market is notably lower, with the benchmark Nikkei 225 Index losing 227.85 points or 1.01 percent to 22,306.47, after touching a low of 22,246.78 in early trades. Japanese shares closed modestly lower on Wednesday.

Market heavyweight SoftBank Group is adding 0.2 percent, while Fast Retailing is declining more than 1 percent.

The major exporters are lower despite a weaker yen. Panasonic is losing almost 3 percent and Mitsubishi Electric is lower by almost 2 percent, while Sony and Canon are declining more than 1 percent each.

In the tech space, Advantest is lower by more than 1 percent and Tokyo Electron is down 0.2 percent. Among automakers, Honda is down almost 3 percent and Toyota is declining more than 2 percent.

In the oil sector, Inpex is losing almost 2 percent and Japan Petroleum is lower by more than 1 percent after crude oil prices fell overnight.

The Nikkei reported that telecom conglomerate Nippon Telegraph & Telephone or NTT will acquire a 5 percent stake in electronics company NEC Corp. for about 60 billion yen, as part of a tie-up to develop 5G wireless technology. Shares of NTT are down 0.3 percent, while NEC Corp.’s shares are rising more than 3 percent.

In economic news, Japan will see April figures for its all industry activity index today.

In the currency market, the U.S. dollar is trading in the lower 107 yen-range on Thursday.

Elsewhere in Asia, South Korea, New Zealand and Singapore are all declining more than 1 percent each, while Malaysia is down almost 1 percent and Indonesia is also lower. The markets in China, Taiwan and Hong Kong are closed on Thursday for the Dragon Boat Festival.

On Wall Street, stocks closed sharply lower on Wednesday as it seemed traders could no longer ignore the spiking number of new coronavirus cases in several U.S. states. Fueling the renewed concerns, Florida and California both reported their single biggest daily increases in new cases of COVID-19. Florida’s Department of Health confirmed 5,508 new cases on Tuesday, while the California Department of Public Health reported an additional 7,149 cases.

The Dow plummeted 710.16 points or 2.7 percent to 25,445.94, the Nasdaq tumbled 222.20 points or 2.2 percent to 9,909.17 and the S&P 500 plunged 80.96 points or 2.6 percent to 3,050.33.

The major European markets also showed substantial moves to the downside on Wednesday. The German DAX Index plunged by 3.4 percent, while the U.K.’s FTSE 100 Index and the French CAC 40 Index tumbled by 3.1 percent and 2.9 percent, respectively.

Crude oil prices declined sharply on Wednesday as worries about the outlook for energy demand rose after data showing a surge in coronavirus cases raised the possibility of another lockdown in several parts of the globe. WTI crude for August delivery plunged $2.36 or 5.85 percent to $38.01 a barrel.

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Business

Asia’s Factories May Be Over Worst as China Demand Picks Up

Asia’s factory managers saw glimmers of hope in June, with the region’s purchasing managers indexes turning up across the board as demand from China picked up.

PMIs for Japan, South Korea, and Taiwan — the region’s manufacturing powerhouses — improved slightly, but stayed below 50, the dividing line between contraction and expansion. Factory output in Vietnam and Malaysia grew for the first time since January and December, before the virus spread in the region. Indonesia’s index surged almost 11 points, the biggest increase since at least 2011, while remaining below 50.

China’s Caixin manufacturing PMI, an index more focused on smaller export-oriented firms, rose in June to 51.2 from 50.7, a release Wednesday showed.

The signs of a turnaround follow another report from China earlier this week that showed an official gauge for China’s factory activity rose in June to 50.9 from 50.6 a month earlier. The non-manufacturing measure increased to 54.4.

Financial markets rallied in the second quarter, buoyed by optimism that re-openings globally would damp soaring unemployment and reinvigorate consumption. However, setbacks in controlling virus outbreaks in many countries, including the U.S., have curbed sentiment. Bloomberg Economics now expects a 4.7% contraction in the global economy this year, down from a previous estimate of a 4% contraction.

What Bloomberg’s Economists Say

“Asia’s June manufacturing purchasing managers’ indexes indicated most economies are recovering, though at varying speeds. China’s official PMI showed that the recovery accelerated, supported by external demand. Some economies such as Australia experienced an initial strong rebound as lockdowns were relaxed. Some others — notably Japan — remained deep in contraction.”

Chang Shu, Chief Asia Economist

Analysis by Oxford Economics found that regional exports are headed for their worst outcome in years, even as the easing of lockdowns paves the way for a gradual recovery.

“The easing in global restrictions and improving Chinese demand are encouraging, but we expect regional exports to remain under pressure in the short-term, given the ongoing global recession,” Sian Fenner, an economist at Oxford Economics, wrote in a note before the PMI data.

In South Korea, a bellwether for global trade, exports continued to contract in June, but at a slower pace than in previous months. Shipments fell 10.9% from a year ago, an improvement from the 23.6% slump in May.

“Given the cyclical nature of South Korea’s export-oriented economy, it appears the chances of a slow recovery from the Covid-19 economic shock are rising,” said Joe Hayes, an economist at IHS Markit. “Without a sustained pickup in demand, manufacturing output levels will likely remain subdued.”

— With assistance by Ailing Tan

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