Dallas Fed President Robert Kaplan said his forecast is for the US economy to have substantial contraction in Q2, in the 20% range on an annualized basis. Unemployment rate could rise to mid teens before falling back to 7-8% by year end.
He added, “we are working furiously here at the Fed to have this in place and work out the details” of the new Main Street lending program. However, small and medium companies are worried about survival even with loan assistance.
Italy’s chief of the Superior Health Institute Silvio Brusaferro warned that “we haven’t reached the peak and we haven’t passed” the coronavirus pandemic. Nevertheless, there were signs of slow down in new infections, and the peak may not be far away. He added, “when the descent begins, how steep it is will depend on our behavior.”
Italy’s cases, currently stand at 80,589, is set to take over China’s “reported” case of 81,340 rather soon. What’s more worrying is the huge death toll at 8,215, nearly double of Spain’s 4,858 as second.
US Personal income rose 0.6% in February, well above expectation of 0.3%. The increase in personal income primarily reflected increases in compensation of employees and farm proprietors’ income. Farm proprietors’ income increased USD 34.1B, which included an increase in subsidy payments associated with the Department of Agriculture’s Market Facilitation Program. Personal spending rose 0.2%, below expectation of 0.3%.
Headline PCE price index was unchanged at 1.8% yoy, above expectation of 1.7% yoy. Core PCE price index accelerated to 1.8% yoy, above expectation of 1.6% yoy.
UK Prime Minister Boris Johnson confirmed that he had tested positive for coronavirus, a day after he appeared at the weekly Q&A session in the House of Commons chamber.
“Over the last 24 hours I have developed mild symptoms and tested positive for coronavirus,” Johnson said. “I am now self-isolating, but I will continue to lead the government’s response via video-conference as we fight this virus.”
Earlier this week, Prince Charles, he 71-year-old heir to the British throne, tested positive for coronavirus. So far, he’s in good health and in self-isolation in Scotland, with mild symptoms. Total coronavirus infections in the UK now stands at 11,658, with 578 deaths.
EU leaders failed to agree on a coordinated coronavirus response yesterday after marathon debates. European Council President Charles Michel admitted after the meeting that “We had tonight a very strong political debate. It was a useful debate, it was a necessary debate.,”
The major division centered around the idea of a “European recovery bond” or “coronabonds” as pushed forward by Italy. France, Spain and seven other member stated backed using EU debt to lift members out of a recession and increase spending on healthcare.
But that was rejected by Germany and the Netherlands. German Chancellor Angela Merkel insisted that coronabonds is “not the point of view of all member states”. And, “ESM is the preferred instrument for me.” Dutch Prime Minister Mark Rutte said the ESM would be the “last resort”, and the Hague would not back joint debt.
Strong rebound in US stocks continued overnight with DOW wrapped up its strongest three-day rally since 1931. At the same time number of confirmed coronavirus cases in the US surged through China, and Italy, as the pandemic worsens. Total infections now reached 85,594, versus 81,340 as “reported” in China and 80,589 in Italy. Coronavirus deaths in the US hit 1,300, relatively low comparing to Italy’s 8,215, Spain’s 4,365 and China’s “reported” death of 3,292.
New York state is hardest hit with 38,977 infections and 466 deaths. New Jersey (6,876), California (4,044), Washington(3,207) and Michigan (2,856) are quite far behind. New York Governor Andrew Cuomo warned, “any scenario that is realistic will overwhelm the capacity of the healthcare system.” The projected shortfall in ventilators is “astronomical” according to Cuomo.
DOW rose 1351.62 pts or 6.38% to close at 22552.17. Corrective target of 38.2% retracement of 29568.57 to 18213.65 at 22551.22 is met already. Upside momentum is starting to diminish as seen in hourly MACD. But there is no sign of topping yet. Thus, further rally could still be seen into early part of next week.
However, we’d expect the correction to complete anywhere between 22551 and 61.8% retracement at 25230.99. Break of 55 hour MACD would likely indicate completion of the rebound and bring retest of 18213.65 low.
US initial jobless claims surged to 3283k in the week ending March 21, up from prior wee’s 282k. That’s the highest level on record. Four-week moving average of initial claims jumped 766k to 998k. Continuing claims rose 101k to 1.803m in the week ending March 14. Four week moving average of continuing claims rose 27.5k to 1.731m.
Also from US, goods trade deficit narrowed to USD -59.9B in February versus expectation of USD -64.5B. Whole sale inventories dropped -0.5% versus expectation of 0.0%. Q4 GDP was finalized at 2.1% annualized while price index was finalized at 1.3%.
BoE voted unanimously to keep Bank Rate unchanged at 0.1%, as well as keeping asset purchase target at GBP 645B. The MPC will “continue to monitor the situation closely and, consistent with its remit, stands ready to respond further as necessary to guard against an unwarranted tightening in financial conditions, and support the economy.”
The central bank said that the “nature of the economic shock” from coronavirus pandemic is “very different from” those the central bank has previously had to respond to. The “scale and duration” will be “large and sharp but should ultimately prove temporary”. Monetary policy is now aimed at “guarding against an unwarranted tightening in financial conditions and, more broadly, supporting businesses and households through the crisis and limiting any lasting damage to the economy.”
Fed Chair Jerome Powell told NBC that the US may “well be in a recession”. But this is different from a “normal recession” as “there is not anything fundamentally wrong with our economy”. And, “quite the contrary, we’re starting from a very strong position”. Also, it’s not a “typical downturn” and “at a certain point, we will get the virus under control and confidence will return.”
Powell also said Fed’s recent measures will provide capital to businesses that need it. “When it comes to this lending, we’re not going to run out of ammunition, that doesn’t happen,” he added. “We still have policy room in other dimensions to support the economy.”
He explained that Fed is targeting places “where credit is not being offered where it should be offered.””We can step in and make that happen. That’s a very positive thing and appropriate thing in this highly unusual situation we’re in,” he said.
German Economic Institute (IW) said in the “positive scenario”, the coronavirus lockdown would last until end of April. GDP growth of the country in 2020 would be around -5% lower than without the pandemic. Industry could lost around -10%. Loss in private service provider would be similar to the broader economy. But in individual areas such as the hospitality industry, double-digit losses can be expected. In this scenario, rapid recovery will begin in may and the crisis could be over by autumn. The V-shaped response would be that at best, the crisis will be almost as severe as the 2009 financial crisis, but broader.
In the “negative scenario”, lockdown could last until end of June and then catch-up process is less intensive. GDP growth would be lowered by -10% compared to the normal course. Industry would be hit hard by -18% and private service by -11%. A U shape economic activity form would be seen in which the upswing would only start at the beginning of Q3. There would be further downward dynamics if companies collapse in large numbers and confidence of consumers and investors cannot be regained. Such a decline would be “unprecedented” and would “fundamentally question the foundations of our prosperity”.
IW added: “A particular problem is the lack of, or even a total lack of, international coordination of the crisis response. There is no coordination on border closings, common solutions and strengthening foreign trade in order to increase flexibility on the supply side. Economic self-sufficiency and foreclosure are not the necessary conditions for national civil protection, but complicate adaptation and hinder recovery. As in 2008, the G20 must develop a common understanding of the crisis and define an action framework. The euro area must assume shared fiscal responsibility to prevent disintegration. To ease the burden on the ECB, corona joint bonds must therefore be examined.
Germany Ifo export expectations dropped sharply from -1.1 to -19.8 in March. That is the sharpest decline since reunification, and the lowest level since May 2009.
Ifo President Clemens Fuest warned, “The corona pandemic is slowing global trade. Cross-border logistics is becoming more difficult. Germany as an export nation is particularly affected.”
Export expectation dropped in almost all industrial sectors, with auto industry particular hard hit. Outlook is also “bleak” in mechanical engineering, textile and clothing. A “comparatively moderate decline” was see among electrical equipment and chemicals.
UK retail sales (quantity bought) dropped -0.3% mom in February, below expectation of 0.0% mom. Retail sales ex-fuel dropped -0.5% mom, also worse than expectation of -0.2% mom.
Rolling three months, quantity bought in retail sales dropped for the fourth consecutive month by -0.6% 3mo3m. Excluding fuel, sales dropped -0.6% 3mo3m.
Germany Gfk consumer climate for April dropped to 2.7, down from March’s 8.3. The index is at its lowest level since May 2009, when consumer climate was at 2.6 during the global financial crisis. Economic expectations dropped by -20.4pts to -19.2, lowest since August 2012. Income expectations dropped -13.4 pts to 27.8, lowest in 7 years.
“In light of the current development, we are withdrawing our consumer forecast of one percent growth for 2020. Retailers, manufacturers and service providers must prepare for a recession,” explains Rolf Bürkl, GfK Consumer Expert. “How severe this recession will be will ultimately depend on when the economy finds its way back to normality. A reliable forecast regarding consumption can only be made once we can predict how long the protective measures to combat corona will remain in place.”
Initial jobless claims from the US have never been so closely watched before. A massive spike in numbers and record jump are expected, as American are suffering heavy impact from coronavirus pandemic. Estimates currently range from 1 million to 4 millions news claims for the weekending March 21. These forecasts are more academic than anything because there is just no way to gauge the impact so far.
Additionally, today’s number might not be very representative. On the one hand, it could just be the tip of the iceberg with claims capped by how quickly they’re processed. A huge number isn’t more disastrous neither as the claims could be somewhat “front-loaded”. We won’t probably know the real picture after getting at least 4 to 6 weeks of data.
While DOW extends the corrective recovery form 18213.65 this week, it’s starting to feel heavy ahead of 38.2% retracement of 29658.57 to 18213.65 at 22551.11. We’d maintain the view that current rebound is, at best, just the second leg of the three wave corrective pattern from 29568.57. The strength of the rebound could reveal how deep the correction would turn out to be, eventually.
BoE’s scheduled monetary policy session is a main focus today. The central has already delivered emergency action last week, by cutting interest rate to 0.1% and expanded its asset purchase program by GBP 200B to GBP 645B. No further rate cut is expected for the time being.
Instead, new Governor Andrew Bailey, who has been in the job for less than two weeks, is expected to reaffirm the central bank’s commitment in fighting the impact of coronavirus pandemic. There might be a further increase in the quantitative easing program, after Fed went QE infinity earlier. Or the board could save this bullet for later use in May. There is no consensus in markets on which way BoE would take.
GBP/CHF recovered after hitting as low as 1.1102 last week and recovered. Price actions from 1.1102 are clearly corrective, in-line with near term bearish outlook. We’d expect recent down trend to resume sooner or later to 61.8% projection of 1.5570 to 1.1701 from 1.3310 at 1.0919 first. And, we’re actually expecting further to 100% projection 0.9441, at least, before finding a major bottom.
US Senate finally approved the USD 2T coronavirus relief package after marathon sessions. The historic legislation was passed by 96-vote just before midnight Wednesday. The package includes USD 500B in loans and assistance for large corporations, USD 300B for small businesses. Individuals will get USD 1200 for each adult and USD 500 for each child. Additionally, unemployment insurance will be expanded. There is also additional funding for hospitals.
Now, the House is set scheduled to vote on the package on Friday. House Majority Leader Steny Hoyer said the House will attempt to pass the bill through a voice vote, a process that would not require all members to be present. “In order to protect the safety of members and staff and prevent further spread of COVID-19 through Members’ travel, the Republican Leader and I expect that the House vote on final passage will be done by voice vote,” Hoyer wrote.
St. Louis Fed President James Bullard tried to tone down the upcoming surge in unemployment rate. He told CNBC that “you’d have this huge spike mostly centered in the second quarter, but everyone knows exactly what that is, that’s pandemic relief that’s done on purpose”.
He added that “once the virus goes away and if we play our cards right and keep everything intact, then everyone will go back to work and everything will be fine.” The economy could see a “boom quarter where there’s a lot of production at that point” thanks to “pent-up demand” resulting from the period of low activity.
US commercial crude oil inventories rose 1.6m barrels in the week ending March 20, below expectation of 2.9m. At 455.4m barrels, oil inventories are about 3% below the five year average for this time of year.
WTI crude oil continues to stay in tight range above 20.40 temporary low after the release. More sideway consolidation could be seen but outlook will remain bearish as long as 36.54 resistance holds. Long term down trend should enter into 10.65/17.12 support zone before finding a bottom.
US durable goods orders rose 1.2% mom to US D249.4B in February, much better than expectation of -0.9% decline. However, ex-transport orders dropped -0.6%, below expectation of -0.2%. Ex-defense orders rose 0.1%.
BoC cuts overnight rate to 0.25%, starts government securities purchases
In an unscheduled announced, BoC decided to lower overnight rate by -50bps to 0.25%. Bank rate is then correspondingly at 0.50% and deposit rate at 0.25%. BoC said, “this unscheduled rate decision brings the policy rate to its effective lower bound and is intended to provide support to the Canadian financial system and the economy during the COVID-19 pandemic.”
Additionally, BoC launches two new programs. Firstly, the Commercial Paper Purchase Program (CPPP) will help to alleviate strains in short-term funding markets and thereby preserve a key source of funding for businesses. Secondly, to address strains in the Government of Canada debt market and to enhance the effectiveness of all other actions taken so far, the Bank will begin acquiring Government of Canada securities in the secondary market. Purchases will begin with a minimum of $5 billion per week, across the yield curve.
Full statement here.