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

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    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
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      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
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        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
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          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
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            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
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              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
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                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.”

                Australia CBA PMI composite recovered to 26.4, May should mark the low point

                  By
                  ActionForex
                  -

                  Australia CBA PMI Composite rose to 26.4 in May, up from 21.7. PMI Services improved from 19.5 to 25.5. However, PMI Manufacturing dropped from 44.1 to 42.8.

                  CBA Head of Australian Economics, Gareth Aird said: “May should mark the low point in the PMIs and we would expect activity to lift from here on a monthly basis. Company views on the economic outlook have improved and the lift in confidence is welcome. That said, it will be a long time before activity returns to pre-COVID-19 levels. And deflationary pressures highlight the huge amount of slack we have now in the economy.”

                  Full release here.

                  RBNZ Ha: Won’t lower OCR until next March since banking system is not ready

                    By
                    ActionForex
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                    New Zealand Dollar is trying to extend this week’s recovery as the chance of RBNZ negative rates is fading. RBNZ chief economist Yuong Ha said in a webinar that he didn’t expect interest rate to be lowered further from the current level of 0.25% this year.

                    “We expect to hold it there for the next 12 months, until March next year,” he said. “We’re not planning on taking it lower at this stage, simply because the banking system is not ready for lower OCR rates at the moment. We’ve given the banking system until the end of the year to get ready so that the option is there for the Monetary Policy Committee in a year’s time.”

                    Though, he also noted that the MPC has “the ability to continue to monitor, revise, reassess and re-evaluate our decisions and the effectiveness of our decisions and do whatever it takes to get us back to our medium-term objectives.”

                    Separately, Westpac also revised their forecast and expect RBNZ to cut OCR to -0.50% in April 2021, rather than November 2020. It said the timing of negative rate “would depend on how long it takes for trading banks to become operationally ready for a negative OCR”. As RBNZ has asked trading banks to ready themselves for negative OCR by December 1 this year, a negative OCT “will be operationally possible from the start of 2021.

                    FOMC members concerned about second wave of coronavirus pandemic

                      By
                      ActionForex
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                      Minutes of FOMC April 29 meeting noted that “in addition to weighing heavily on economic activity in the near term, the economic effects of the pandemic created an extraordinary amount of uncertainty and considerable risks to economic activity in the medium term”.

                      “A number” of members saw a “substantial likelihood of additional waves of outbreak” which would lead to a “protracted period of severely reduced economic activity.” “With another round of strict restrictions on social interactions and business operations, was assumed to begin around year-end, inducing a decrease in real GDP, a jump in the unemployment rate, and renewed downward pressure on inflation next year,” the summary said.

                      The Committee would “continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and would use the Committee’s tools and act as appropriate to support the economy.”

                      Fed Kaplan: Probably take more fiscal action to grind down unemployment

                        By
                        ActionForex
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                        Dallas Fed President Robert Kaplan told CNBC that the US would probably need more fiscal action “whether it’s aid to governments or other fiscal action as we go through this.”

                        “The problem is we’re going to have an unemployment rate that peaks at around 20%, which we’re going to reach very soon,” he added. “We’re going to end the year with an unemployment rate as high as 10%, and we’re going to need to grind that down, and it’s probably going to take more fiscal action to help grind that down.”

                        “The Fed has done a lot to help stabilize the markets and make sure that small companies, mid-size companies, bigger companies have access to capital,” Kaplan said. “But again, these are loans. We’re the lender of last resort and this is intended to be a bridge to when we are going to recover.”

                        BoE Bailey: We’re not ruling in, not ruling out negative rates

                          By
                          ActionForex
                          -

                          On negative interest rates, BoE Governor Andrew Bailey said “we’re not ruling it in, and we’re not ruling it out”. Though, he insisted that this is the “right time” to assess all the tools available, including purchases of riskier assets.

                          Communication is “absolutely critical” if BoE would move on negative interest rates, he added. And BoE is looking carefully at the experience of other central banks with negative rates.

                          Canada in deflation with CPI at -0.2% in April

                            By
                            ActionForex
                            -

                            Canada CPI turned negative in April, dropped to -0.2% yoy, down from March’s 0.9% yoy. That’s also slightly below expectation of -0.1% yoy. The decline was mainly due to fall in energy prices as a result of coronavirus pandemic.

                            CPI common slowed slightly by -01.% to 1.6% yoy, below expectation of 1.7% yoy. CPI median, was unchanged at 2.0% yoy, above expectation of 1.9% yoy. CPI trimmed was unchanged at 1.8% yoy, matched expectations.

                            Also from Canada, whole sale sales dropped -2.2% mom in March, better than expectation of -4.5% mom.

                            Eurozone CPI finalized at 0.3% in April, core CPI at 0.9%

                              By
                              ActionForex
                              -

                              Eurozone CPI was finalized at 0.3% yoy in April, down from 0.7% yoy in March. Core CPI was finalized at 0.9% yoy, down from March’s 1.0% yoy. In April, the highest contribution to the annual Eurozone inflation rate came from food, alcohol & tobacco (+0.67%), followed by services (+0.52%), non-energy industrial goods (+0.09%) and energy (-0.97%)

                              EU CPI was finalized at 0.7% yoy, down from March’s 1.2% yoy. The lowest annual rates were registered in Slovenia (-1.3%), Cyprus (-1.2%), Estonia and Greece (both -0.9%). The highest annual rates were recorded in Czechia (3.3%), Poland (2.9%) and Hungary (2.5%).

                              Full release here.

                              UK CPI slowed to 0.8% in April, lowest since 2016

                                By
                                ActionForex
                                -

                                UK CPI dropped -0.2% mom in April. Annually, CPI slowed to 0.8% yoy, down from 1.5% yoy, below expectation of 0.9% yoy. That’s also the lowest level since August 2016. Core CPI slowed to 1.4% yoy, down from 1.6% yoy, matched expectations. RPI, an older measure of inflation, slowed to 1.5% yoy, down from 2.6% yoy.

                                “Falling petrol and diesel prices, combined with changes to the domestic energy price cap were the main reasons for lower inflation in April,” ONS Deputy National Statistician Jonathan Athow said.

                                Also released, PPI input came in at -5.2% mom, -9.8% yoy, below expectation of -3.7% mom, -8.4% yoy. PPI output was at -0.8% mom, 0.7% yoy, below expectation of -0.4% mom, -0.4% yoy. PPI output core was at -0.1% mom, 0.6% yoy, matched expectations.

                                Australia retail sales dropped record -17.9 in April, falls in every industry

                                  By
                                  ActionForex
                                  -

                                  According to preliminary data, Australia retail sales dropped -17.9% mom in April. That’s the biggest seasonally adjusted fall on record, and came after the biggest jump in March. Comparing to a year ago, retail turnover dropped -9.4% yoy. Falls were seen in every industry, with particularly strong falls in food retailing, cafes, restaurants and takeaways, and clothing, footwear and personal accessories.

                                  Westpac-Melbourne Institute Leading Index dropped form -2.34 to -5.16 in April. The indicator points to a “broad-based economic contraction”. This is “easily the weakest reading since the GFC and is comparable to readings seen prior to Australia’s recessions in the 1990–91, 1982–83, 1974–75 and 1960–61.”

                                  Westpac also said, ‘we do not expect the economy to return to pre-Coronavirus levels of activity before 2022.” But for now, RBA has already indicated that it’s “committed to maintaining its significant support for the economy for the foreseeable future.”

                                  RBNZ Orr prepared to go to negative rate but a lot later

                                    By
                                    ActionForex
                                    -

                                    RBNZ Governor Adrian Orr said in a Bloomberg interview today that he’s currently “targeting a low and flat yield curve through the purchases bonds.” The central bank “does not want to go to negative rate at this point”. It’s “prepared to go to negative rate but a lot later” And it remains one option for RBNZ.

                                    Also, he reiterated the view that “the operational challenge still remains with some banks still working on being able to actually operate with negative official cash rate and negative wholesale rates”.

                                    BCC: Only 37% UK firms can fully restart with workplace safety guidance

                                      By
                                      ActionForex
                                      -

                                      According to the coronavirus business impact tracker of the British Chambers of Commerce, only 37% of firms said they can “fully restart” operations while implementing the government’s coronavirus workplace safety guidance. 45% said they can “partially restart”.

                                      BCC Director General Adam Marshall said: “Companies at all levels of readiness to restart, of all sizes, and in every part of the UK will need sustained government support as they navigate the ‘new normal’ with reduced demand and restrictions still in place. Many support schemes will need to be adapted and updated, but must not be withdrawn prematurely.”

                                      Full release here.

                                      US CBO: Labor market to materially improve after Q3

                                        By
                                        ActionForex
                                        -

                                        US Congressional Budget Office said in a report yesterday the economy is expected to “begin recovery during the second half of 2020”. Labor market is projected to “materially improve after the third quarter”. Though, “the persistence of social distancing will keep economic activity and labor market conditions suppressed for some time.”

                                        In the new projections, GDP would contract by an annualized rate of -37.7% in Q2. Though, the economy is expected to pick up during H2 and rebound by averaged annualized rate of 15.8%. For 2020 as a whole, GDP could contract by -5.6% in 2020, followed by 4.2% growth in 2021.

                                        Unemployment rate is projected to peak at an average of 15.8% in Q3. At the mean time, participation rate, has already dropped by -3.2% to 60.2% in April. It’s expected to recovery slightly to 61.1% in Q3 only, and edge further higher to 61.5% in 2021.

                                        Full report here.

                                        Fed Rosengren: Unemployment will remain at double-digit by year end

                                          By
                                          ActionForex
                                          -

                                          Boston Fed President Eric Rosengren said yesterday that unemployment will likely “peak at close to 20%” in the US. “Unfortunately, even by the end of the year, I expect the unemployment rate to remain at double-digit levels.” He emphasized that “public health solutions are paramount”. Without them, it will be “virtually impossible to return to full employment”.

                                          He added that the Main Street Lending Program, which is expected to open in the coming weeks, is an “important program”. “It will not be able to assist everyone, but we expect that it will provide an important bridge for many businesses that employ much of the American workforce,” he added.

                                          Rosengren’s full speech.

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