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Canada retail sales dropped record -10% in March

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    ActionForex
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    Canada retail sales dropped -10.0% to CAD 47.1B in March, slightly better than expectation of -10.3% mom. That’s also the first decline in five months, and the largest on record. Ex-auto sales, on the other hand, -0.4% mom.

    StatCAN said that about 40% of retailers closed their doors during March. The average length of shutdowns was five business days. In the clothing and clothing accessories stores subsector, 91% of retailers were closed in March for an average of 13 days. Sales were down in 6 of 11 subsectors, representing 39.2% of retail trade.

    Full release here.

    BoE Ramsden: Certainly not rule out expanding asset purchase next week

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      ActionForex
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      BoE Deputy Governor Dave Ramsden said he’s “certainly not going to rule out” an increase in the asset purchase program at the meeting next week. “It’s quite possible that we could do more at that meeting or at subsequent meetings. But we will make that decision at the time,” he said.

      He added that BoE still had “quite a lot of headroom” in terms of gilt purchases, and “we have the potential to flex any purchases program.

      On the topic of negative rates, he said “we are keeping out whole tool-set under active review”. It was “perfectly reasonable to have an open mind on negative rates,” he said.

      Released from UK, retail sales dropped -18.1% mom, -22.6% yoy in April. Ex-fuel sales dropped -15.2% mom, -18.4% yoy. Public sector net borrowing surged to GBP 61.4B, up from GBP 14.0.

      Hong Kong status in jeopardy as China set to bypass 1C2S to impose national security law

        By
        ActionForex
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        Hong Kong stocks tumble sharply today as China confirmed that it’s going to impose its own national security laws in the city. The new legislations are expected to ban any sedition, secession and subversion of the central government run by the Chinese Communist Party. Most importantly, the method used will bypass the city’s own legislative body, effectively violating the “One-Country, Two-Systems” as promised. Hong Kong’s special international status granted by the US and other countries due to the high degree of autonomy is seen as in severe jeopardy..

        US President Donald Trump warned that “if it happens we’ll address that issue very strongly.” Senate Majority Leader Mitch McConnell also said, “a further crackdown from Beijing will only intensify the Senate’s interest in re-examining the U.S.-China relationship.” State Department spokesperson Morgan Ortagus urged China to “honor its commitments and obligations to the Sino-British Joint Declaration” of guaranteeing Hong Kong a “high degree of autonomy” until at least 2047. She added, those commitments are “key to preserving Hong Kong’s special status in international affairs, and, consistent with US law, the United States’ current treatment of Hong Kong”.

        The last British governor of Hong Kong, Chris Patten, called the move a “comprehensive assault on the city’s autonomy”. “At best, the integrity of ‘one country, two systems’ hangs by a thread,” he added. “Unless the Chinese Communist regime sees sense, this will be hugely damaging to Hong Kong’s international reputation and to the prosperity of a great city.” “UK should tell China this is outrageous”.

        HSI gapped lower today and it’s currently down nearly -4% at the time of writing. The multiple rejection by 55 day EMA, and the break of 23483.31 support today, suggest that corrective rebound form 21139.26 has completed at 24855.47. Deeper fall is now expected for retesting 21139.26 low, or even further to resume the medium term down trend. It remains to be seen if the selloff in Hong Kong stocks would spillover to other markets.

        Japan CPI core turned negative for the first time since 2016

          By
          ActionForex
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          Japan slipped back into deflation as data released today show. All item CPI slowed to 0.1% yoy in April, down form 0.4% yoy. CPI core (all-item less fresh food), dropped to -0.2% yoy, down from 0.4% yoy. That’s the first negative core CPI reading since December 2016. CPI core-core (all-item less energy, fresh food) slowed to 0.2%, down from 0.6% mom.

          The data suggests clear downward pressure on prices due to coronavirus containment pressure. Also, core CPI could head deeper into negative territory as services and energy inflation wane ahead.

          BoJ launches new program to support SMEs, keeps interest rate and unlimited QE

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            ActionForex
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            At a unscheduled monetary policy meeting today, BoJ announced to introduce a new Fund-Provisioning Measure to support financing of small and medium-sized businesses. With the new facility, zero-interest loans are offered to financial institutions that boost lending to SMEs by tapping government guarantee programs. It also offers to pay 0.1% interest to lenders that boost such loans.

            At the same meeting, BoJ also kept monetary policy unchanged. Under the yield curve control framework, short-term policy rate is held at -0.1%. BoJ will also purchase JGBs, without upper limit” to keep 10-year yield at around 0%. Kataoka Goushi dissented the decision and pushed for lowering short- and long-term interest rates further, in response to a possible increase in downward pressure on prices.

            Full release here.

            RBNZ Orr: QE program highly effective, a very simple story to continue

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              ActionForex
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              RBNZ Governor Adrian Orr said the QE program had been “highly effective” in lowering wholesale interest rates. Given the nation of the coronavirus shocks, the central bank had “plenty of assets to purchase while maintaining our operational independence”.If the program remained effective, “then ongoing large-scale asset purchases would be a very simple story, subject to the markets functioning well”.

              He also said a negative OCR could be “efficient” and “effective”, but there was a “limit” to what it could do. FX intervention might lead to currency depreciation “but that could be very short-lived”. Also, the foreign exchange markets are “very large markets”, he added. “You don’t want to stand in front of them. You want to work with them.”

              Separately released, New Zealand retail sales dropped -0.7% qoq in Q1, better than expectation of -1.5% qoq. Ex-auto sales rose 0.6% qoq.

              BoC Poloz: We’re in a era where interest rates going to stay low

                By
                ActionForex
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                BoC Governor Stephen Poloz said that “we are in an era where interest rates are probably going to stay low, for demographic reasons and economic growth reasons. I don’t know how low really but they’re just not going to be like where they were 20 years ago or 30 years ago”.

                He’s also optimistic that Canada could be on track for the best-case recovery scenario. That is, growth might just shrink -15% in Q2 comparing with Q4. Nevertheless, overall inflation rate turned negative in April. Poloz added that “if it’s going to be underperforming, then we’re going to be easier for longer. That’s the essence of the (2%) target and that’s why it’s there.”

                Fed Clarida: Easing of financial conditions is buying some time for the economy

                  By
                  ActionForex
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                  Fed Vice Chair Richard Clarida said the US economy is “really in an uncharted situation right now. My own sense is that we’ll begin to get a better sense of the scenario and the trajectory the economy is on in early fall.”

                  He added that Fed’s efforts helped ease financial conditions during the coronavirus pandemic. “While this easing of financial conditions is, of course, welcome, whether it proves to be durable will depend importantly on the course that the coronavirus contagion takes and the duration of the downturn that it causes,” he said. “At a minimum, the easing of financial conditions is buying some time until the economy can begin to recover.”

                  Fed Bostic: Atlanta reopening has been a mixed bag

                    By
                    ActionForex
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                    Atlanta Fed President Raphael Bostic said reopening of the state has been a “mixed bag. “Some places and some people are feeling like they’re very prepared to jump back into the economy and get back to where they were pre-crisis,” Bostic added. “But there are a lot of businesses where they’re not seeing the same kind of foot traffic they were before.”

                    He reiterated his two primary concerns. Firstly, surge in unemployment could be permanent rather than temporary. The coronavirus could come back with a second wave and further curtail activity. “If that happens repeatedly, then I think the recovery is going to struggle a bit,” he said.

                    Bostic also said he’s “not a big fan of negative rates” and he’s “concerned about flare-ups and consumer impact”.

                    Fed Williams unsure of the sharp or timescale of recovery

                      By
                      ActionForex
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                      New York Fed President John Williams said together that “what we don’t know is what the shape or timescale of the recovery will be”. It’s going “to be some time before we have a clearer view of the effects on other industries, including autos, higher education, manufacturing, and professional services.”

                      “Amid all the change we’re experiencing, you can be assured of one thing: our unwavering commitment to limit the economic damage from the pandemic and foster conditions for a strong and sustained recovery,” he said.

                      US PMI composite rose to 36.4, GDP to decline -37% annualized in Q2

                        By
                        ActionForex
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                        US PMI Manufacturing recovered to 39.8 in May, up from 36.1, PMI Services rose to 36.9, up from 26.7. PMI Composite rose to 36.4, up from 27.0.

                        Chris Williamson, Chief Business Economist at IHS Markit, said:

                        “The severe drop in business activity in May comes on the heels of a record downturn in April, adding to signs that GDP is set to suffer an unprecedented decline in the second quarter.

                        “Encouragement comes from the survey indicating that the rate of economic collapse seems to have peaked in April. In the absence of a second wave of COVID-19 infections, the decline should moderate further in coming months as measures taken to contain the coronavirus are steadily lifted.

                        “However, the sheer scale of the current downturn and associated job losses, and the fact that some restrictions will need to stay in place until an effective treatment or vaccine are found, highlights how a full recovery is unlikely to be swift.

                        “We anticipate that GDP will decline at an annualised rate of around 37% in the second quarter, and it will take the economy two years to regain the pre-pandemic peak.”

                        Full release here.

                        US initial jobless claims dropped to 2.4m, continuing claims rose to 25m

                          By
                          ActionForex
                          -

                          US initial jobless claims dropped -249k to 2438k in the week ending May 16. Four-week moving average of initial claims dropped -501k to 3042k. Continuing claims rose 2525k to 25073k in the week ending May 9. Four-week moving average of continuing claims rose 2314k to 22002k.

                          Full release here.

                          RBA Lowe: Extraordinarily unlikely to use negative rates

                            By
                            ActionForex
                            -

                            RBA Governor Philip Lowe said together that “restoring confidence on the health front is a precondition for a strong recovery. “We might get a vaccine, we might get some anti-viral medication, but it’s also possible that we don’t. So we have an incredible lot riding on the work of the scientists.”

                            Looking ahead, “one obvious source of uncertainty is the pace at which the various restrictions are eased. Another source of uncertainty is the level of confidence that people have about their future, both in terms of their health and their own finances.

                            He added that the central bank was prepared to scale up the bond purchases if necessary. However, it was “extraordinarily unlikely” to cut interest rates into negative.

                            UK PMI composite rose to 28.9, looks set to see a frustratingly slow recovery

                              By
                              ActionForex
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                              UK PMI Manufacturing rose to 40.6 in May, up from 32.6, above expectation of 33.5. PMI Services rose to 27.8, up from 13.4, above expectation of 22.1 too. PMI Composite rose to 28.9, up from 13.8.

                              Chris Williamson, Chief Business Economist at IHS Markit, said: “The UK economy remains firmly locked in an unprecedented downturn, with business activity and employment continuing to slump at alarming rates in May. Although the pace of decline has eased since April’s record collapse, May saw the second largest monthly falls in output and jobs seen over the survey’s 22-year history, the rates of decline continuing to far exceed anything seen previously.

                              “The UK looks set to see a frustratingly slow recovery, given the likely slower pace of opening up the economy relative to other countries which have seen fewer COVID-19 cases. Virus related restrictions, widespread job insecurity and weak demand will be exacerbated by growing business uncertainty regarding Brexit. We are consequently expecting GDP to fall by almost 12% in 2020. While the quarterly rate of decline looks likely to peak at around 20% in the second quarter, the recovery will be measured in years not months.”

                              Eurozone PMI composite rose to 30.5, still point to -10% Q2 GDP contraction

                                By
                                ActionForex
                                -

                                Eurozone PMI Manufacturing rose to 35.4, up from 18.1, below expectation of 38.0. PMI Services rose to 28.7, up from 12.0, above expectation of 23.9. PMI Composite rose to 30.5, up from 13.6.

                                Chris Williamson, Chief Business Economist at IHS Markit said:

                                “The eurozone saw a further collapse of business activity in May but the survey data at least brought reassuring signs that the downturn likely bottomed out in April. “Second quarter GDP is still likely to fall at an unprecedented rate, down by around 10% compared to the first quarter, but the rise in the PMI adds to expectations that the downturn should continue to moderate as lockdown restrictions are further lifted heading into the summer.

                                “An additional concern is that demand is likely to remain extremely weak for a prolonged period, putting further pressure on companies to make more aggressive job cuts as government job retention schemes expire. We therefore expect GDP to slump by almost 9% in 2020 and for a full recovery to take several years.”

                                Full release here.

                                Germany PMI composite rose to 31.4, any hope of swift pick-up dashed

                                  By
                                  ActionForex
                                  -

                                  Germany PMI Manufacturing rose to 36.8 in May, up from 34.5, but missed expectation of 40.0. PMI Services rebounded strongly to 31.4, up from 16.2, beat expectation of 26.0. PMI Composite rose to 31.4, up from 17.4.

                                  Phil Smith, Principal Economist at IHS Markit said: “Any hopes of a swift pick-up in activity across the German economy following the easing of lockdown restrictions have been somewhat dashed by May’s flash PMI survey, which shows activity down again across both the manufacturing and service sectors. The rate of decline in activity has eased considerably since the peak of virus containment measures in April, but we are still a long way off business as usual and the path to recovery remains unclear. With demand expected to remain below ‘normal’ levels for quite some time, firms are continuing to cut workforce numbers at a worrying rate in order to better align capacity with current conditions. The scale of job losses is a key risk to the longer-term outlook.”

                                  Full release here.

                                  France PMI composite rose to 30.5, activity still in decline from already low base

                                    By
                                    ActionForex
                                    -

                                    France PMI Manufacturing improved to 40.3 in May, up from 31.5, above expectation of 40.3. PMI services rebounded notably to 29.4, up from 10.2, just missed expectation of 30.0. PMI Composite rose to 30.5, up sharply from 11.1.

                                    Eliot Kerr, Economist at IHS Markit said: “As anticipated, the latest France Flash PMI results pointed to a much slower contraction in business activity during May, with some companies reopening as lockdown measures are cautiously pared back. However, despite some firms beginning to resume operations, the private sector as a whole posted another sharp decline in activity, falling further from an already low base set in April. The data highlights the difficulties economies may face in the recovery from this crisis, as firms continue to lay-off workers amid a persistently uncertain outlook. Given the sharp contraction in first quarter GDP caused by only two weeks in lockdown, the latest PMI data suggest that we are set for colossal reduction in economic activity during the second quarter.”

                                    Full release here.

                                    Japan PMIs: Potential hit to Q2 could be as large as 20% on previous year

                                      By
                                      ActionForex
                                      -

                                      PMI Manufacturing dropped to 31.7 in May, down from 34.7. PMI Services recovered to 25.3, up from 21.5. PMI Composite recovered to 27.4, up from 25.8.

                                      Joe Hayes, Economist at IHS Markit, said latest data provide “yet another shocking insight into the devastating impact of the COVID-19 outbreak”. “Plummeting demand for goods is finally catching up with manufacturing sector”. Taking April and May data together, they’re indicative of GDP falling at an annual rate in excess of 10% and the economy is going to contract for a third straight quarter. Potential hit to Q2 could be as large as 20% on the previous year. Also, “damage to the manufacturing sector could continue to worsen as global trade conditions deteriorate and the global economic recovery is slow”.

                                      Full release here.

                                      Japan exports dropped most in a decade in April

                                        By
                                        ActionForex
                                        -

                                        In non seasonally adjusted term, Japan’s export dropped -21.9% yoy in April to JPY 5.2T. That’s the worst decline since 2008. Exports to US dropped a massive -37.8% yoy, worst since 2009. Exports to China dropped -4.1% yoy.

                                        Imports dropped -7.2% yoy to JPY 6.1T. Trade surplus came in at JPY 930B.

                                        In seasonally adjusted terms, exports dropped -10.4% mom to JPY 5.2T while imports rose 0.2% mom to 6.2T. Trade deficit widened to JPY -1.0T.

                                        Australia Treasurer Kennedy: We’re pretty close to unemployment peak

                                          By
                                          ActionForex
                                          -

                                          Australian Treasury Secretary Steven Kennedy said the peak of unemployment “would come through in these months in April and May”. He told a senate committee, “we’d be pretty close to it would be my guess”. Though, “in a measured sense, the unemployment rate may well rise between May and June because of the switch between out of the workforce and back into the workforce.”

                                          He added that “we’ve gone well past the world recession” but it’s hard to predict if a depression was looming. Return of consumer and business confidence was the hardest part of forecasting the recovery. And, “the question is whether you’ve avoided the destructive cycles of firms going broke because they just ran out of cash.”

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