The title of today’s IHS Markit Flash Eurozone PMI says it all: “Unprecedented collapse of Eurozone economy amid virus lockdown”. The composite PMI plummeted to an all-time low of 13.5 in April, with services (11.7) takings the biggest hit (manufacturing PMI: 33.6). Recall that the previous, February 2009 low, stood at 36.2. Levels below 50 point at contraction. Companies active in hospitality, accommodation, restaurants, travel and tourism saw the biggest falls in activity.

National data released for Germany and France painted a similar picture. Chief business economist Williamson said that current PMI’s correspond with a 7.5% Q/Q GDP contraction in Q2. Risks seem tilted to the downside though as progress in lifting containment measures goes painfully slow to prevent a second wave of infections. In the face of such a prolonged slump in demand, job losses could intensify from the current record pace and new fears will be raised as to the economic cost of containing the virus. Details showed steep declines in output, new (export) orders and employment.

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Companies in the German services sector are shedding people at a faster pace than in the previous crisis. It’s cynical that supplier delivery times (broken supply chains) and inventory build-up (see oil business) prevented even deeper drops in PMI’s. Price gauges declined as well with business offering discounts to balance lower demand. Lower oil and commodity prices and lower operation expenses pull cost prices lower. The market reaction was rather muted. They knew this had been coming for the month of April. However, we fear they aren’t positioned yet for difficult times ahead even as governments slowly lift lockdown measures.

The EuroStoxx 50 returned opening gains, but stabilized afterwards. EUR/USD tested the 1.0769 early April low, but didn’t fall through this support level. Core bonds initially extended yesterday’s losses, but PMI’s (more than) reversed today’s initial decline. They currently hover near opening levels.

German yields lose 2 to 3 bps across the curve. 10-yr yield spreads vs Germany narrowed by  up to 3 bps with Greece (-19 bps) outperforming. The US yield curve flattens with yield changes ranging between +0.3 bps (2-yr) and -2.4 bps (30-yr).

US weekly jobless claims showed that 4.43 million US citizens applied for unemployment benefits. The weekly pace slows slightly, but the five-week telly in the meantime already stands at 26.5 million.

Other notable FX moves today are yen weakness on rumours that the BoJ will discuss unlimited bond buying (USD/JPY > 108) and sterling withstanding similar PMI drops as Europe.

News Headlines

The Japanese government painted a very bleak picture in its monthly economy report. The Japanese economy is suffering a severe deterioration and the cabinet sees no light at the end of the tunnel with economic conditions expected to remain dire for quite some time as the coronacrisis is taking its toll on private consumption, (overseas) demand and the labour market.

Chinese Xi Jinping said the country’s long-term growth trend has not changed and vowed to stimulate an economy reeling from the coronacrisis, the manufacturing sector in particular. Xi pledged investments in various sectors including 5G, AI, transport and energy and promised to boost employment

The IHS Markit Composite PMI for the UK dived to a new record low of 12.9 this month from 36 in March, pointing to a 7% QoQ GDP contraction as the coronacrisis hit the British economy with unprecedented force. The indicator for the dominant services sector plunged to 12.3 from 34.5. BoE’s Vlieghe warned the economy is experiencing possibly its deepest economic shock in several centuries and the recovery is likely to be U-shaped rather than a quick bounce-back.


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