US personal income grew 10.5% mom, or USD 1.97T in April, versus expectation of -7.0% mom decline. Spending, on the other hand, dropped -13.6% mom, or USD 1.89T, worse than expectation of -12.6% mom. Headline PCE price index slowed to 0.5% yoy, down from 1.3% yoy. Core PCE price index also dropped to 1.0% yoy, down from 1.7% yoy.
Eurozone CPI slowed to 0.1% yoy in May, down from 0.3% yoy. That’s also the lowest level in four years. Nevertheless, the slow down was largely driving by -12.0% yoy in energy prices. Excluding energy, CPI was unchanged at 1.4%. CPI ex energy and unprocessed food was unchanged at 1.1% yoy. CPI ex energy, good, alcohol & tobacco was also unchanged at 0.9% yoy.
Separately, ECB Governing Council member Ignazio Visco warned, “steps must be taken to counter the significant risk of low inflation and the marked fall in economic activity from translating into a permanent reduction in expected inflation or into the possible resurfacing of the threat of deflation.”
“Also as a result of the high levels of public and private debt in the euro area as a whole, this could trigger a dangerous spiral between the fall in prices and that in aggregate demand.”
According to second estimate, France GDP dropped -5.3% in Q1, revised down from -4.8% in first estimate. Household consumption expenditure recorded an unprecedented drop (-5.6%). Total gross fixed capital formation (GFCF) fell even more sharply (-10.5%). All in all, total domestic demand (excluding changes in inventories) contracted: it contributed -6.0 points to GDP growth.
Imports fell (-5.7%), but less sharply than exports which fell by -6.1%. Overall, the contribution of foreign trade balance to GDP growth was zero. Conversely, changes in inventories contributed positively to GDP growth (+0.6 points).
Also released, CPI slowed to 0.2% yoy in May, down from 0.4% yoy, missed expectation of 0.3% yoy. Consumer spending dropped -20.2% mom in April, worse than expectation of -15%
Swiss KOF Economic Barometer dropped to 53.2 in May, down from 59.7, missed expectation of 70.2. The reading has halved now since the beginning of the year. KOF said that as in April, “the manufacturing sector continues to have the strongest negative impact. Indicators relating to foreign demand also have a clearly negative impact on the barometer.” By contrast, “private consumption and the construction industry are sending slightly improved signals.”
New Zealand ANZ Consumer Confidence rebounded by 12pts to 97.3 in May, but remained at “very subdued levels”. Consumers’ perceptions regarding next year’s economic outlook lifted 10 pts -46, still at very low level.
ANZ said: “We absolutely should celebrate our success in beating back COVID-19, but the wreckage lies all around us. The loss of jobs in international tourism in particular is a hole that won’t be filled easily or quickly. We see elevated unemployment affecting household sentiment and spending for a long time yet.”
The government relaxed the coronavirus restrictions further today, allowing gatherings of up to 100 people. Finance Minister Grant Robertson said New Zealand “now has some of the most relaxed settings in the world. Because of our success in fighting this virus, our public health efforts to go hard and go early have allowed us to open up our economy much quicker than many other countries,” he said.”
Japan’s industrial production plunged -9.1% mom in April, even worse than expectation of -5.1% mom. That’s the biggest decline since comparable data became available back in 2013. “Conditions among manufacturers particularly in the auto sector are severe, but production has already restarted in China and I think that they will be resumed in the United States and Europe as well,” said Economy Minister Yasutoshi Nishimura after the release of the data.
Also from Japan, unemployment rate edged up by 0.1% to 2.6% in April, better than expectation of 2.7%. Retail sales dropped -13.7% yoy, worse than expectation of -11.5% yoy. Though, Tokyo CPI core turned positive to 0.2% yoy in May, up from -0.1% yoy.
New York Fed President John Williams dismissed the idea of negative rates again and said “we have other tools that I think are more effective and more powerful to stimulate the economy”. He added, “I don’t think negative rates is something that makes sense given the situation we’re in because we have these other tools that can be used,” referring to the low interest rates, forward guidance and the balance sheet. Regarding the economy, “over time, the biggest question mark is how the consumer is going to behave,” Williams said. “How long will people take to really want to take advantage of tourism and other things.”
Separately, Dallas Fed President Robert Kaplan said he expected growth in H2 and 2021. His forecasts are based on assumption that consumers would travel, eat out and broadly re-engage in the economy again. But risks are to the downside if the US doesn’t ramp up coronavirus testing. His baseline is that unemployment rate would fall to 10-11% by year-end and dip further to below 7% by end of 2021.
BoE policymaker Michael Saunders, a known dove, warned of the risks of a “vicious circle whereby the economy gets stuck in a self-feeding loop of weak activity, pessimistic expectations and low investment.”
“The searing experience of such a dramatic drop in incomes, jobs and profits is likely to have lasting behavioural effects, as after previous crises,” he said.
He maintained he dovish stance and urged, “it is safer to err on the side of easing somewhat too much, and then if necessary tighten as capacity pressures eventually build, rather than ease too little and find the economy gets stuck in a low inflation rut.”
According to second estimate, US GDP contracted -5.0% annualized in Q1, worse than first estimate of-4.8% annualized. A downward revision to private inventory investment was partly offset by upward revisions to personal consumption expenditures (PCE) and nonresidential fixed investment. PCE price index was unrevised at 1.3% yoy. PCE core price index was revised down to 1.6% yoy, down from 1.8% yoy.
US durable goods orders dropped -17.2% to USD 170.0B in April, better than expectation of -18.1%. That’s still the second month of sharp decline, following -16.6% in March. Ex-transport orders dropped -7.4%. Ex-defense orders dropped -16.2%.
US initial jobless claims continued to drop, by -323k to 2123k in the week ending May 23. Four-week moving average of initial claims dropped -436k to 2608k. Continuing claims dropped -3860k to 21052k in the week ending May 16. Four-week moving average of continuing claims rose 765.25k to 22722k.
Eurozone Economic Sentiment Indicator rose slightly to 67.5 in May, up from 64.9, but missed expectations of 70.5. Employment Expectations Indicator led the way, jumped to 70.2, up from 58.9. Industrial Confidence rose to -27.5, up from -32.5. Consumer Confidence rose to -18.8, up from -22.0. Retail Trade Confidence rose slightly to -29.7, up from -30.1. On the other hand, Services Confidence dropped to -43.6, down from -38.6. Construction Confidence dropped to -17.4, down from -16.1. Business Climate dropped to -2.43, down from -18.1.
Ifo updated their German economic forecasts and now expects GDP to shrink by -6.6% this year. A strong rebound of 10.2% GDP growth is expected in 2021. “This is based on our evaluation of the ifo survey conducted among companies in May. On average, participants consider it most likely that their own business situation will return to normal in nine months,” says Timo Wollmershaeuser, Head of Forecasts at ifo.
The forecast depends heavily on how quickly companies’ business situation returns to normal. In the best case, companies indicate that this might take an average of only five months. GDP could shrink only -3.9% this year and grow 7.4% next.
In the worst case, with an average normalization period of 16 months, economic output would shrink by -9.3% this year and grow by 9.5% next year. The recovery would then be drawn out well into 2022.
Also, the new forecast was prepared based on the assumption not that the coronavirus is defeated in the coming months, but that its spread can be contained and a second wave of infection avoided.
Hong Kong stocks tumble notably in Asian session today while off-shore Chinese Yuan also breached to a new low. US-China tensions intensified further over the proposed national security law for Hong Kong. (More details regarding the laws here). US Secretary of State Mike Pompeo told Congress on Wednesday that Hong Kong no longer qualifies for its special status as China has undermined the city’s autonomy so fundamentally.
Pompeo said China’s plan on the national security legislation was “only the latest in a series of actions that fundamentally undermine Hong Kong’s autonomy and freedoms… No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given facts on the ground. He certified to the Congress that Hong Kong no longer warrants treatment under U.S. laws “in the same manner as U.S. laws were applied to Hong Kong before July 1997.” “It is now clear that China is modeling Hong Kong after itself,” he added.
Separately, US also requested an emergency UN meeting over issue. Washington’s UN mission staid in a statement, that China’s proposal will “fundamentally undermine Hong Kong’s high degree of autonomy and freedoms as guaranteed under the Sino-British Joint Declaration of 1984, which was registered with the UN as a legally binding treaty… This is a matter of urgent global concern that implicates international peace and security.” However, it said that China has “refused to allow this virtual meeting to proceed”. “This is another example of the Chinese Communist Party’s fear of transparency and international accountability for its actions,” the US statement said.
China’s ambassador to the UN Zhang Jun just tweeted “Legislation on national security for Hong Kong is purely China’s internal affairs. It has nothing to do with the mandate of the Security Council.”
Hong Kong HSI is currently down around -1.6% but it’s holding above this week’s low at 22519 so far. Technically, corrective rebound from 21139.26 should have completed at 24855.47 after rejection by 55 day EMA, and further decline is expected to retest this low. Nevertheless, break of 22519 support needs to happen first.
USD/CNH breached 7.1953 resistance to 7.1961, but there was no follow through buying there. We’d maintain that 7.1953 should provide technical resistance to limit upside, and bring another fall to extend the consolidation pattern. However, sustained trading above 7.1953 will indicate serious deterioration in US-China tension, which could prompt rather sharp selloff in Yuan to extend medium term up trend in USD/CNH.
New Zealand ANZ Business Confidence improved to -41.8 in May, up from May’s prelim reading of -45.6, and April’s -66.6. All industry stayed negative, worst in Agriculture at -82.1. Activity Outlook improved to -38.7, up from May’s prelim reading of -42.0, and April’s -55.1. Retail activity was worst at -45.3. Also, with the Activity Outlook stayed well below 2008.09 lows, and would “need to rise another 17 points just to reach its lows from the 2009 recession”.
ANZ also noted, “it’s a long way back to normality” while “the recession is just starting to make itself felt”. The economy needs to “reshape to face to the new reality”, in particular, the loss of international tourists “completely for now, but likely still at a hugely significant scale for years”. “Fiscal and monetary policy are doing what they can to cushion the blow and sow the seeds of recovery, but it’s going to be a long haul.”
RBA Governor Philip Lowe said that the economy could be “better than the baseline” scenario as forecast earlier this month. RBA projected that GDP could contract by -6% this year with unemployment rise to 9%. “With the national health outcomes better than earlier feared, it is possible that the economic downturn will not be as severe as earlier thought. Much depends on how quickly confidence can be restored,” he added.
Lowe also noted that the monetary stimulus package was working as expected. If we had to do more we could purchase more government bonds. But as things stand at the moment, we don’t see the need to doing more,” he said. He also reiterated negative interest rates were “extraordinarily unlikely”.
Fed’s Beige Book economic report noted that “economic activity declined in all districts – falling sharply in most – reflecting disruptions associated with the COVID-19 pandemic.” Although many contacts expressed hope that overall activity would pick-up as businesses reopened, “the outlook remained highly uncertain and most contacts were pessimistic about the potential pace of recovery.”
Employment continued to “decrease in all Districts”. There were “challenges in bringing employees back to work”. Overall wage pressures were “mixed” as some firms cut wages while others implemented temporary wage increases for essential staff or to compete with unemployment insurance.
Pricing pressure varied but were “steady to down modestly on balance”. Weak demand weighed on selling prices. Several Districts also reported low commodity prices. But “supply chain disruptions and strong demand led to higher prices for some grocery items”.
New York Fed President John Williams said that “maybe we are near the bottom in terms of the economic downturn”. There could be a “pretty significant” rebound in the second half of the year. Nevertheless, he still cautioned that “even if we are starting to see perhaps a stabilization there in terms of the economy and maybe a little bit of a pickup, we’re still in a very difficult situation.”
Regarding monetary policy, Williams said Fed is “thinking very hard” targeting specific yields on Treasuries. “Yield-curve control, which has now been used in a few other countries, is I think a tool that can complement -– potentially complement –- forward guidance and our other policy actions.”
“So this is something that obviously we’re thinking very hard about. We’re analyzing not only what’s happened in other countries but also how that may work in the United States.”
Gold’s decline from 1765.25 extends lower today and breached 1700 handle. The fall is getting better in shape as the correction to whole rise from 1451.16 to 1765.25 as we viewed. Further fall should be seen to 38.2% retracement of 1451.16 to 1765.25 at 1645.26 before bottoming. On the upside, break of 1735.44 resistance is needed to indicate completion of the corrective fall. Otherwise, deeper decline will remain in favor in case of recovery.
Canada GDP contracted -7.2% in Mar, prelim data points to -11% decline in Apr
Canada GDP tumbled a massive -7.2% mom in March, but was better than expectation of -9.0% mom. Overall, 19 of the 20 industrial sectors were down, contributing the monthly decline. StatCan also said that preliminary information indicates a further slump of -11% decline in real GDP in April.
IPPI dropped -2.3% mom in April versus expectation of -2.0% mom. RMPI dropped -13.4% mom versus expectation of -23.9% mom.