US retail sales dropped a record -16.4% mom in April to USD 403.9B, worse than expectation of -10.0% mom. That’s also nearly double the -8.3% drop in March, which was the prior worst reading since 1992.
Ex-auto sales dropped -17.2% mom, much worse than expectation of -8.6% mom. Ex-gasoline sales dropped -15.5% mom. Ex-auto, ex-gasoline sales dropped -16.2% mom.
UK Brexit chief Brexit negotiator David Frost said “very limited progress” were made on the “most significant outstanding issues” with EU after completing the latest round of negotiations. He further warned that if EU persists in its “novel and unbalanced proposals on the so-called level playing field,” two sides won’t be able to reach an agreement.
“We very much need a change in EU approach for the next round,” Frost added. “The U.K. will continue to work hard to find an agreement, for as long as there is a constructive process in being, and continues to believe that this is possible.”
On the other hand, EU chief Brexit negotiation Michel Barnier said the third round of Brexit talks was “disappointing”. But he insisted, “We’re not going to bargain away our values for the benefit of the British economy.”
Germany’s GDP shrank -2.2% qoq in Q1, slightly worse than expectation of -2.0% qoq, worst in more than a decade. Also, as Q4’s figure was revised down to -0.1% qoq, the country was already in a technical recession with two straight quarters of contraction.
The contraction is expected to accelerate in Q2, with economists forecasts a -10% decline in GDP. But Germany’s Economy Ministry sounded relatively optimistic. It said in an email statement: “The recovery began with the cautious lifting of the lockdown at the beginning of May. But this process will take a longer time due to the continuation of the corona pandemic.”
Eurozone GDP contracted -3.8% qoq in Q1. EU GDP contracted -3.3% qoq. Both are worst declines since the series started in 1995. Annually Eurozone GDP contracted -3.2% yoy while EU GDP contracted -2.6% yoy, both were worst since Q3 2009.
Employment in dropped -0.2% qoq in both Eurozone and EU, worst declines since 2013.
Gold’s break of 1723.36 resistance overnight suggests that triangle consolidation from 1747.75 might have finally finished. Focus is immediately back on this high. Break will resume larger up trend. 61.8% projection of 1160.17 to 1703.28 from 1451.16 at 1786.80 will be an important hurdle to overcome. Sustained break there could prompt upside acceleration for the medium term. Meanwhile, break of 1711.14 minor support will dampen the bullish case and bring more range trading first.
China’s industrial production grew 3.9% yoy in April, above expectation of 1.5% yoy. That’s the first expansion reading this year as activity was returning to normal from coronavirus pandemic. However, consumption remained weak as retail sales contracted -7.5% yoy in April, matched expectations. That’s already better than -15.8% contraction of sales in March. Fixed asset investment contracted -10.3% ytd yoy in April, worse than expectation of -10.0%.
USD/CNH remains bounded in range after the releases, having little reactions. Outlook is unchanged that the structure of the rebound from 6.8452 suggests that it’s the second leg of the corrective pattern from 7.1953. Hence, we’d expect upside to be limited by this 7.1953 resistance to bring another fall. Break of 7.0523 would start the third leg towards 6.8452/9040 support zone.
Overall, we’d expect range trading to continue between 38.2% retracement of 6.2354 to 7.1953 at 6.8286 and 7.1953. Breakout on either side will need some significant development to fuel.
New Zealand BusinessNZ Performance of Manufacturing Index dropped -11.9 to 26.1 in April. That’s the lowest level on record since the survey began, with prior low at 36.1 record in November 2008 during the global financial crisis. Production (down from 31.4 to 19.8) and new orders (down from 36.6 to 17.8) were particularly hit hard.
BusinessNZ’s executive director for manufacturing Catherine Beard said, “looking at comments from respondents, only two words stand out, namely COVID-19 and lockdown, with 89.7% of respondents outlining negative comments”. Lockdown was lowered to level 3 on April 28 and level 2 on May 14. “This should see a return to relatively stronger levels of activity. However, to what extent the sector climbs out of rock bottom will largely depend on the ability to get new orders up and running, along with revised factory floor processes for production”.
BNZ Senior Economist, Doug Steel said that “recent negative PMI readings from around the world illustrate the widespread economic pain being felt. New Zealand’s April reading is lower than other countries we often compare ourselves to, which tallies with suggestions that NZ restrictions have been tighter than many”.
In its Financial System Review Summary, BoC said since the onset of the coronavirus pandemic, it has established a range of facilities and purchase programs to address the problems with market function and confidence. These measures are “showing signs of succeeding”. It noted that:
Governor Stephen Poloz said: “Our goal in the short-term is to help Canadian households and businesses bridge the crisis period. Our longer-term goal is to provide a strong foundation for a recovery in jobs and growth.”
He added, “We entered this global health crisis with a strong economy and resilient financial system. This will support the recovery. But we know that debt levels are going to rise, so the right combination of economic policies will be important too.”
US President Donald Trump said in a Fox Business Network interview today that it’s “a great time to have a strong dollar”. “Right now it’s good to have a strong dollar. Right now having a strong dollar is a great thing” he added. Dollar’s strength “could live both ways” as he noted. From a “trade standpoint, it’s tougher”. However, from a “country” and “inflation standpoint”, “you don’t have inflation, you don’t have problems.”
Regarding the trade deal phase one with China, Trump reiterated that “we’re not going to renegotiate”. And, “right now, I don’t want to speak to him (Chinese President Xi Jinping), I don’t want to speak to him”. He also cautioned that “we could cut off the whole relationship. If we did, what would happen? You’d save $500 billion.” (apparently referring to the trade between US and China).
US initial jobless claims dropped another week, by -195k to 2981k in the week ending May 9. Four-week moving average of initial claims dropped -564k to 3616.5k.
Continuing claims rose 456k to 22833k in the week ending May 2. Four-week moving average of continuing claims rose 2730k to 19760k.
BoE Governor Andrew Bailey rejects negative interest at a webinar organized by the Financial times. He said, negative rate is “not something we are currently planning for or contemplating”. He added that cutting interest rate below zero would need “an extensive communications exercise” in the UK. It’s a “very big step” from “communications point of view, as well as “reaction” and expectations”.
He also warned that the economy would suffer longer-term damage from the current coronavirus crisis. Nevertheless, it’s unclear whether a 30% contraction in GDP is H1, as projected by BoE, would prove overly pessimistic or an under-estimate.
Australia employment dropped -594.3k to 12.4m in April, largest fall on record. That was slightly worse than expectation of -575.0k. Full-time jobs dropped -220.5k to 8.66m, Part times jobs dropped 373.8k to 3.76.
Unemployment rate rose 1.0% to 6.2%, highest since September 2015. That was much better than expectation of 8.3%, But it should be noted that firstly, participation rates dropped sharply by -2.4% to 63.5%. Secondly, monthly hours worked in all jobs dropped -163.9m hours to 1625.8m hours.
“The large drop in employment did not translate into a similar sized rise in the number of unemployed people because around 489,800 people left the labour force”, stated Bjorn Jarvis, head of labour statistics at the ABS. “This means there was a high number of people without a job who didn’t or couldn’t actively look for work or weren’t available for work”.
US stocks closed lower overnight and risk aversion carries on in Asian session. Investors were somewhat disappointed by Fed Chair Jerome Powell’s rejection of negative interest rates. Additionally, he’s rather cautiously pessimistic with his comments on the recovery.
In short, Powell said “the committee’s view on negative rates really has not changed. This is not something that we are looking at.” While “there are fans of the policy” of negative rates, he added, “for now, it’s not something we’re considering”. He emphasized “we have a good toolkit and that’s the one that we will be using.”
On the economy, Powell is the trajectory is “highly uncertain and subject to significant downside risks.” “There is a sense that the recovery may come more slowly than we would like, but it will come. And that may mean that it’s necessary for us to do more.”
DOW’s strong break of 23361.16 support suggests that a head and shoulder top has finally completed (ls: 24264.21, h: 24764.77, rs: 24382.09). That came after DOW failed to sustain above 55 day EMA. Deeper fall should now be seen to 38.2% retracement of 18213.65 to 24764.77 at 22262.24.
Reactions from 22262.24 should reveal whether fall from 24764.77 is a pull back. Or it’s reversing whole rebound from 18213.65. Firm break there should at least send DOW to 61.8% retracement at 20716.17, or further for a retest on 18213.65 low.
San Francisco Fed President Mary Daly said overnight that the phased reopening of economy “by definition translates to a slow recovery as we put toes in the water, see if the virus flares up when we go back to some economic activity.” “If it doesn’t, we can gain some momentum, people will be more confident; but if it does then people are going to be more cautious and that will slow the recovery even further,” she added. “Whichever scenario occurs, this is going to be a slow recovery and not a sharp rebound.” Also, under most scenarios “the economy is going to need more support, in all likelihood.”
Separately, Treasury Secretary Steven Mnuchin said Q2 is expected to be “pretty bad”. But with economy reopened safely, next year “we’ll be back to having a quick economy”. He added that President Donald Trump was open to more fiscal spending. However, “we’re not in a rush to do that this week or next week. We’re going to take our time.”
NIESR projects that UK economy to contract by -25% to -30% in Q2.
“In a period of radical uncertainty, the short-term economic impact of Covid-19 is becoming clearer with the publication of GDP data for March, where output is expected to be lower by about 25 per cent in months when the lockdown is in place. Restarting the economy by promoting activities in upstream sectors such as construction, some manufacturing and the government will increase overall activities via helpful spillovers. But without a vaccine, there is significant risk of a second wave which could trigger a further setback in the economy.” Dr Kemar Whyte Senior Economist – Macroeconomic Modelling and Forecasting
In a speech delivered online, Fed Chair Jerome Powell said that with the current coronavirus crisis “the path ahead is both highly uncertain and subject to significant downside risks”. Policies will, therefore, need to be “ready to address a range of possible outcomes”.
Powell also noted that “Fed has lending powers, not spending powers”. Fed’s loan could provide a “bridge” across temporary liquidity interruptions. As recovery “may take some time to gather momentum”, the passage of time can “turn liquidity problems into solvency problems”.
“Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” he added. “This tradeoff is one for our elected representatives, who wield powers of taxation and spending.”
In the Q&A part, Powell reiterated that the issue of negative rates was revisited back in October. The FOMC minutes already noted that all member said it wasn’t an attractive policy tool. He added that the committee was not looking at negative rates as members believed Fed has tools that work.
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US PPI final demand dropped -1.3% mom in April, below expectation of -0.5% mom. That’s the largest monthly decrease since December 2009. Core PPI dropped -0.3% mom, below expectation of 0.0% mom.
Annually, PPI dropped -1.2% yoy, dropped from 0.7% yoy, versus expectation of -0.4% yoy. That’s also the largest decline since November 2015. PPI core rose 0.6% yoy, slowed from 1.4% yoy, below expectation of 0.9% yoy.
Eurozone industrial production dropped -11.3% mom in March, slightly better than expectation of -12.0% mom. Production of durable consumer goods fell by -26.3% mom, capital goods by -15.9% mom, intermediate goods by -11.0% mom, energy by -4.0% mom and non-durable consumer goods by -1.6% mom.
EU industrial production dropped -10.4% mom. Among Member States for which data are available, the largest decreases in industrial production were registered in Italy (-28.4%), Slovakia (-20.3%) and France (-16.4%). The highest increases were observed in Ireland (+15.5%), Greece and Finland (both +1.9%) and Lithuania (+0.7%).
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Fed Powell: Negative rates probably inappropriate, not useful for US
In CBS 60 Minutes, Fed Chair Jerome Powell reiterated that the central bank is not considering negative interest rates. He said, “I continue to think, and my colleagues on the Federal Open Market Committee continue to think, that negative interest rates is probably not an appropriate or useful policy for us here in the United States.”
“There’s no clear finding that it actually does support economic activity on net, and it introduces distortions into the financial system, which I think offset that,” Powell said. “There’re plenty of people who think negative interest rates are a good policy. But we don’t really think so at the Federal Reserve.” “There’s a lot more we can do. We’ve done what we can as we go. But I will say that we’re not out of ammunition by a long shot.”
On the economy, Powell said, “assuming there’s not a second wave of the coronavirus, I think you’ll see the economy recover steadily through the second half of this year”. However, “for the economy to fully recover people will have to be fully confident, and that may have to await the arrival of a vaccine,” he added.
Full transcript of the program here.