Shocking Leap in U.S. Jobless Insurance Claims Steals the Spotlight

March 26, 2020

From theĀ  outset of this week, the most feared data release was today’s report on new jobless insurance claims for the week ending March 21, which was going to capture the impact of broad business lockdowns to combat the spreading Covid-19 pandemic. New claims had averaged 251k during the four weeks through March 14, and analysts felt last week’s figure would involve at least a half-million new laid-off workers and possibly as many as a million. The actual number, 3.283 million far outstripped even the most pessimistic forecasts. The data suggest that the once unassailable 25% unemployment peak during the Great Depression will soon be exceeded.

Other U.S. data just released revealed another narrowing of the goods and services trade deficit to $59.89 billion in February according to the “advance” estimate from $65.9 billion in January and $68.5 billion in December. Imports tumbled 2.6%. Also, the last estimate of fourth-quarter real GDP growth was left unchanged at 2.1% on quarter at a seasonally adjusted annualized rate. This matches the third-quarter pace and nearly matches growth of 2.0% in 2Q19. GDP rose 2.3% compared to the final quarter of 2018. The PCE price deflator recorded an on-year increase of 1.4% (1.6% on a core basis). This snapshot of the U.S. economy 3-5 months ago now represents ancient history. A recession has begun, and inflation will fall, too.

In the marketplace this morning shortly before these U.S. releases,

  • The dollar was broadly lower, including drops of 1.3% against the Australian dollar, 1.4% versus the Mexican peso, 1.1% relative to sterling, 0.4% vis-a-vis the euro and 0.3% against the yen and Swiss franc. A 0.5% rise against the yuan was an exception but reflected strong intervention support by the People’s Bank of China.
  • Stock markets had closed widely mixed, with gains of 10.2% in Indonesia, 4.9% in India, and 2.3% in Australia but losses of 4.5% in Japan, 1.1% in South Korea, and 0.6% in China. European markets took their cue from the losers, with slides of 1.9% in Germany, 1.6% in France, and 1.5% in Great Britain.
  • WTI crude oil’s price had dived 2.6% and was trading below $24/barrel, while gold had ticked 0.5% higher.
  • The stampede out of risk saw 10-year sovereign debt yields sporting overnight declines of 49 basis points in Greece, 18 bps in Spain, 14 bps in Italy, 8, bps in France, 9 bps in the U.S., 6 bps in Germany and 5 basis points in both Japan and Great Britain.

Two pieces of general news were the rise in global coronavirus cases and deaths to 488,081 and 22,058, respectively. 14% of identified worldwide cases have been in the United States. Also, the Senate last night passed the $2.0 trillion fiscal rescue package despite some last-minute resistance from the Republican side.

The Bank of England and Czech National Bank had scheduled policy reviews today but had taken strong stimulative action at emergency meetings earlier in March.

The Bank of England’s Monetary Policy Committee had lowered the bank rate from 0.75% to 0.25% on March 11 and by a further 15 basis points to 0.10%, a record low, on March 19. Officials also had lifted the ceiling on the purchases of gilt securities and corporate bonds to GBP 645 billion and had taken other actions to encourage bank lending and counter tightened financial market conditions. No further immediate action was taken today but a statement was released detailing how economic prospects have been altered by the coroniavirus pandemic and laying out the roles of monetary policy and other government policies in this crisis.

The Czech National Bank’s two-week repo rate was reduced by 50 basis points to 1.75% at an emergency meeting held on March 16, and minutes of that meeting were published today. They reveal that officials initially considered cutting by 75 bps but opted from a still larger-than-usual 50 basis points in order not to alarm investors unduly. The “Board declared it was ready to cut interest rates further should the economic situation so require. Furthermore, the Board confirmed that the CNB stood ready to react to any excessive fluctuations of the koruna exchange rate using its instruments, in line with the managed float exchange rate regime.”

Other data reported today gave further portent to the coming virus-powered economic tsunami.

  • German consumer confidence dropped to a reading of 2.7 in April, lowest since March 2009, from 8.3 in March and 9.9 in February.
  • Singapore industrial production plunged 22.3% on month in February. Real GDP in Singapore fell 10.6% in the current quarter, prompting officials to say that GDP growth in all of 2020 is likely to be negative to the tune of 1-4%.
  • The volume of British retail sales fell 0.3% in February, a half percentage point lower than analysts were forecasting, and record no increase for the first time since March 2013.
  • French business sentiment posted its biggest month-to-month decline since at least 1980, declining ten index points to a 5-year low of 95. The subindex for the service-sector industry slumped to 92 from 106.
  • Icelandic unemployment rose 1.6 percentage points to a near 5-year high in February of 5%.
  • Swedish consumer confidence dropped almost 9 index points to an 86-month low in March, while business sentiment slumped to an 83-month low. Swedish imports in February were 3.1% weaker than a year earlier.

The delayed Swiss government’s quarterly economic forecast revised projected 2020 growth down 3 percentage points to minus 1.3% and projected average CPI inflation this year down a half percentage point to -0.4%.

South African producer price inflation edged down to 4.5% in February from 4.6% in March.

Euroland M3 growth accelerated in February to 5.5% on year and averaged 5.2% over the past three reported months. On-year growth in loans to households and non-financial firms decelerated to 3.8% and 3.0% last month.

Japanese corporate service prices failed to rise for a third straight month in February, trimming their 12-month rate of increase to 2.1%.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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