US retail sales dropped -8.7% mom in March to USD 483.1B. Ex-auto sales dropped -4.5% mom. Ex-gasoline sales dropped -8.0% mom. Ex-auto and gasoline sales dropped -3.1% mom.
Fed Daly doesn’t expect a sharp V-shaped recovery after coronavirus pandemic
San Francisco Fed President Mary Daly told WSJ that “I don’t expect a sharp V-shaped recovery” in the US economy after the coronavirus pandemic. Instead, she said “I expect something more like negative quarters of growth throughout 2020, and then a gradual return to positive growth in 2021.”
Daly remains “optimistic” that Fed can achieve the dual mandate of full employment and price stability. “But it’s going to take some time”. For now, Fed remains committed to keeping rates at rock-bottom levels until after the coronavirus passes.
Daly’s comment was a big contrast to St. Louis Fed President James Bullard. Bullard said yesterday there is “no reason” the economy can’t come back in a “V-shape” rebound. He added that a robust recovery can happen if it’s “managed appropriately”.
EU laid pre-conditions of lockdown exit, WHO suggests two-week staged approach
European Commission President Ursula von der Leyen urged members stage to take a “gradual approach” in exiting the coronavirus lockdown. And “every action should be continuously monitored”. Also, she laid down three main pre-conditions for the exit: 1. Significant decrease in the spread of the coronavirus 2. Sufficient health system capacity 3. Adequate surveillance and monitoring capacity
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Separately, the WHO said lifting of lockdowns should be down in stages of two weeks. WHO said: “To reduce the risk of new outbreaks, measures should be lifted in a phased, step-wise manner based on an assessment of the epidemiological risks and socioeconomic benefits of lifting restrictions on different workplaces, educational institutions, and social activities… Ideally there would be a minimum of 2 weeks (corresponding to the incubation period of COVID-19) between each phase of the transition, to allow sufficient time to understand the risk of new outbreaks and to respond appropriately.”
Germany: Economic performance slumped in Q1, trend continues in April
Germany’s Economy Ministry said that the coronavirus pandemic has led the global economy into recession. Even though further development is associated with great uncertainties, recovery in Germany could start in the second half of the year. The measures taken by the federal government helps reducing the negative economic consequences.
It also said “the collapsing global demand, the interruption of supply chains, changes in consumer behavior and uncertainty among investors are having a massive impact on Germany.” Domestically, for the shutdown alone, “economic performance is likely to have slumped on average in the first quarter. It can be assumed that this trend will continue in April.”
Meanwhile, “how severe the slump is going to be is currently difficult to assess” and “further economic development is still subject to unusually large uncertainties.”
Australia consumer sentiment suffered record plunge, but overall pandemic experience much less debilitating
Australia Westpac Consumer Sentiment dropped sharply by -17.7% to 75.6 in April. That’s the single biggest monthly decline in the 47 year history of the survey. The index also dived through the trough during 2008-2009 global financial crisis, to the levels only seen during the deep recessions of the early 1990s (64.6) and early 1980s (75.5).
Though, Westpac chief economist Bill Evans noted that “Australia’s pandemic experience to date has been much less debilitating than that of the hardest hit areas abroad… Recent evidence showing a clear slowing in new cases that indicates policy measures are working to contain the spread.” He expected the economy to be lifted in the December quarter following “three consecutive quarters of economic contraction”.
Regarding the upcoming RBA meeting on May 5, Evans said “It seems likely that the Board considers it has done its duty to support the economy and will now look to governments if further support for the economy is required.”
PBoC cut MLF rate to record low, LPR cut expected later in the month
China’s PBoC cut the interest rate on its one-year medium-term lending facility today, by 20bps to 2.95%. That’s the lowest level on record and is expected to inject CNY 100B into the market. The move should also pave the way for a similar reduction in the benchmark Loan Prime rate later on the 20th, to lower financing costs for businesses.
Earlier in the month, PBoC announced to cut the RRR for small banks to release reserves. The first phase would take effect today, and free up around CNY 200B of long-term funds. A total of CNY 400B of liquidity is expected after the second-phase of reserve ratio cut due in mid-May.
Fed officials expect unemployment rate to spike to a high level
Richmond Fed President Thomas Barkin said yesterday that unemployment rate could hit double digits. He pointed to the 30 million people working in hospitality, retail, retail and entertainment, which makes up around 20% of total workforce. Shutting down of these industries could lead jobless rate to mid-to-high teens. And, “We’re going to have a tough second and third quarter, that’s for sure.”
At the same time, businesses are already planning their post-pandemic lives, preparing for more resilience to health crisis. “Folks who are in consumer facing businesses are thinking very aggressively about how you can build separation, cleanliness, a health protocol,” into their operations, he added. “People are rethinking supply chains — to diversify them. They have seen the implications of an outage.”
St. Louis Fed President James Bullard said there is “no reason” the economy can’t come back in a “V-shape” rebound. He added that a robust recovery can happen if it’s “managed appropriately”. He pointed to the surge in jobless claims and noted most people believed unemployment rate is “already in the double-digit range”. Though, “ideally, the unemployment rate would spike at a high level then come down again as we get the economy started up again on the other side of this crisis.”
Chicago Fed President Charles Evans said there is a “hopeful possibility” that the sharp recession can be just a “temporary downturn.” But “there are many caveats in the hopeful story line, and many, many things must go right in order to minimize the economic pain.” The biggest risk is that coronavirus “may be with us for a while” and delay the recovery even into 2021.
IMF: Global economy to contract -3% this year, advanced economies by -6.1%
IMF warns today that because of coronavirus pandemic, “it is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago. The Great Lockdown, as one might call it, is projected to shrink global growth dramatically.”
In 2020, world output is estimated to contract by -3.0%. Advanced economies are expected to contract by -6.1% overall. US GDP would decline by -6.1%, Eurozone by -7.5%, Japan -5.2%, UK by -6.5% and Canada by -6.2%. China’s growth is projected to slow sharply to 1.2% only.
Global economy is expected to return to growth in 2021. But IMF chief economist Gita Gopinath warned that “this recovery in 2021 is only partial as the level of economic activity is projected to remain below the level we had projected for 2021, before the virus hit. The cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars, greater than the economies of Japan and Germany, combined.”
OBR: UK economy to contract -35% in Q2 but bounces back quickly
UK’s Office for Budget Responsibility said the country’s real GDP could contract by -35% in Q2, but bounces back quickly afterwards. Unemployment could rise by more than 2 million to 10% in Q2, but declines more slowly than GDP recovers.
Public sector net borrowing could increase by GBP 218B to the groups March forecast, to GBP 273B, or 14% of GDP. The large sharp rise in borrowing this year largely reflects the impact of economic disruption on receipts and policy measures that add to public spending.
In response to OBR’s forecast, Chancellor of Exchequer Rishi Sunak said, “the report makes clear that the actions we’ve taken – unprecedented actions – will help to mitigate the impact of the virus on our economy and that if we hadn’t done these things it would mean that things were a lot worse, for example with unemployment.
Dombrovskis: EU could finance a EUR 1.5T coronavirus recovery fund
European Commission Vice President Valdis Dombrovskis said EU could finance a coronavirus recovery fund that is worth up to EUR 1.5T. He added that the recovery fund could be financed by bonds backed by guarantee from EU member states. But “nothing had been decided yet”.
He added that the Commission was open to all possibilities permitted by the EU Treaty of Lisbon, adding: “We’re not ruling out any option if the member states agree on it. As we all know, that doesn’t apply to eurobonds.”
“The simple fact that the Eurogroup has agreed on a coronavirus aid package makes it easier for very indebted member states to access the capital markets. No euro zone country currently has problems finding buyers for its government bonds,” he said.
France GDP to contract -8% this year as lockdown extends to May 11
French Finance Minister Bruno Le Maire said the country’s economy is set to contract -8% this year, instead of -6% as mentioned just last week. Coronavirus lockdown was originally planned to end today, but was delayed to at least May 11.
To help the economy, Le Maire said the government expects to spend around EUR 25B on partial unemployment benefits. Total emergency spending could exceed EUR 100B if necessary. He added, “we have chosen to take on debt to save our economy: more debt for fewer bankruptcies”.
Separately, Budget Minister Budget Minister Gerald Darmanin said on France Info radio that the deficit will reach 9% of GDP in 2020, and public debt 115%.
Staying in Europe, some activities including construction and manufacturing are allowed to resume today, as the death tolls peaked earlier in the month. But Health Minister Salvador Illa insisted that the country remains in lockdown as shops, bars and public spaces will stay closed until at least April 26. Shops in Austria are also reopening today.
China returned to trade surplus, but exports plunged -13.3% this year
In March, in USD term, China’s exports dropped -6.6% yoy to USD 185.2B. Imports dropped -0.9% yoy to USD 165.3B. Trade surplus came in at USD 19.9B. From January to March accumulative, exports dropped -13.3% ytd/y to USD 478.2B. Imports dropped -2.9% ytd/y to 465.0B. Trade surplus came in at just USD 13.2B.
Also year-to-March, exports to EU dropped -16% ytd/y to USD 70.5B. Imports from EU dropped -7% ytd/y to USD 55.2B. Exports to US dropped -25.2% ytd/y to 68.3B. Imports from US dropped -3.7% ytd/y to USD 27.5B.
Australia NAB business confidence dropped to -66, recession of unprecedented speed and magnitude ahead
Australia NAB Business Confidence dropped to -66 in March, down from -2. That’s record low, even worse than the reading during 2008 global financial crisis and early 90s recession. Business Conditions dropped to -21, down from 0. While condition index was slightly worse than the reading at financial crisis, it sit well above the trough during 90s recessions.
NAB chief economist Alan Oster said “We expect a recession of unprecedented speed and magnitude for the Australian economy over the next three quarters. “This will see a sharp increase in unemployment.”
“Policy makers have made a huge response that we think will be unable to offset the negative prints we will see in economic data in the near term but we are optimistic these actions will support a solid recovery once the virus is contained,” Oster added.
New Zealand unemployment rate could peak at 26% without additional fiscal support
New Zealand Treasury published a report analyzing the economic impacts of the coronavirus pandemic. Assuming no additional fiscal measures beyond the announced NZD 20B direct support, contraction in GDP in the year to March 2021 could range from 13% (the least restrictive scenario), to closer to one-third (with tight restriction through the year).
Unemployment rate could peak at 13% in the least restrictive scenario, or 26% in the tight restriction scenario. However, with additional NZD 20B in fiscal spending directed to households and businesses, unemployment rate could be limited to less than 10% in the least restrictive scenario Inflation will remain below 2% midpoint of RBNZ’s target range.
Separately, Finance Minister Grant Robertson said that the government will announce further support for businesses this week and more in the Budget next month. He said, “the Budget is also another important part of the response, and it will include significant support to respond to and recover from Covid-19. As is usual with the Budget, there may well be pre-announcements, especially where they relate to urgent Covid-19 response activities.”
Gold hits new 7-year high as up trend resumes
Gold surged to new 7-year high as lifted by broad based weakness in Dollar. The correction from 1703.28 has completed early than expected at 1451.16. Break of this resistance confirms up trend resumption.
Outlook will stay bullish as long as 1644.67 resistance turned support holds. Next upside target is 100% projection of 1451.16 to 1644.67 from 1567.78 at 1761.29.
In the bigger picture, the strong support from 55 week EMA displays clear medium term bullishness. A take on 1920.70 high would likely be seen next.
WTI crude oil in range below 30, unimpressed by OPEC+ cut
WTI crude oil are trading in tight range below 30 as traders are unimpressed by the OPEC+ deal on production cut. On Sunday, the OPEC+ group, agreed to cut output by 9.7 million barrels per day in both May and June.
That’s around 10% of global supply before coronavirus pandemic. Together with other producers including the US, total estimated cut could add up to 19.5 million barrels per day. But there are doubts that the eventual effect production cut is much smaller, while compliance remains an issue.
Suggested reading: OPEC+ Deal on Output Cut Unlikely Helps Reduce Surplus. Downside Risk on Oil Price Remains
WTI weakens after hitting 32.15 last week and stays in range. Some support is seen from 4 hour 55 EMA for the moment. And recovery from 20.40 could still extend to 55 day EMA (now at 36.89). But we’re seeing the price actions from there as corrective. Thus, upside should be limited by 38.2% retracement of 65.38 to 20.40 at 37.58. Break of the 4 hour 55 EMA will target a test on 20.40 low.
Fed Powell: The economic rebound, when it comes, can be robust
Fed Chair Jerome Powell said the central bank can contribute to fighting the coronavirus pandemic in important ways, “by providing a measure of relief and stability during this period of constrained economic activity, and by using our tools to ensure that the eventual recovery is as vigorous as possible.”
“When the spread of the virus is under control, businesses will reopen, and people will come back to work”, he added. ” There is every reason to believe that the economic rebound, when it comes, can be robust.”
Earlier in US session, Fed further ramped up its emergency actions by detailing the new USD 2.3T loan facilities to deliver credit to small businesses and municipalities. It also expanded measures introduced last month to back corporate debt markets.
US U of Michigan sentiment dropped to 71, consumers need to be prepared for a longer and deeper recession
US University of Michigan consumer sentiment dropped to 71.0 in April, down from 89.1. Current economic conditions index dropped to 72.4, down from 103.7. Consumer expectations dropped to 70.0, down from 79.7.
The -18.1 pts plunge was the latest decline ever recorded. Combined with march’s decline, the two-month drop of -30.0 pts was 50% larger than the prior record. “The free-fall in confidence would have been worse were it not for the expectation that the infection and death rates from covid-19 would soon peak and allow the economy to restart” Surveys of Consumers chief economist, Richard Curtin said.
“Consumers need to be prepared for a longer and deeper recession rather than the now discredited message that pent-up demand will spark a quick, robust, and sustained economic recovery.”
NIESR: UK GDP to contract 15% to 25% in Q2
NIESR said UKeconomy could have declined by -5% in Q1. And if lockdown continues, GDP could contract by -15% to -25% in Q2. The lockdown is “causing the largest contraction in economic activity since 1921”
“The UK economy is now almost certain to experience a major contraction in the second quarter of the year. The forceful impact of COVID-19 and the global lockdown has thrust the economy into unknown territory where we could see GDP declining at a record quarterly rate. Nonetheless, instant and significant recovery remain a distinct possibility if the spread of the virus comes to halt quickly.” – Dr Kemar Whyte Senior Economist – Macroeconomic Modelling and Forecasting
US Empire State manufacturing dropped to -78.2, record low by a wide margin
US Empire State Manufacturing index dropped to -78.2 in April, down from -21.5. It’s the lowest level in the history of the survey “by a wide margin”. New orders and shipments declined at a record pace. Delivery times lengthened, and inventories fell. Employment levels and the average workweek both contracted at a record pace. Input price increases slowed considerably, while selling prices declined modestly.
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