ECB Monetary Policy Review and Some Atrocious Economic Data

April 30, 2020

At a scheduled meeting of the European Central Bank Governing Council, officials left key interest rate unchanged (a 0.0% refinancing rate flanked by a -0.5% deposit rate and a 0.25% marginal lending rate). Quantitative stimulus (asset purchases) was not enhanced beyond last month’s parameters. Terms were relaxed on some lending operations, and a new series of non-targeted pandemic longer term refinancing operations was initiated. “The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime,” according to the released statement, and President Christine Lagarde warned of a possible double-digit GDP contraction this year. More forceful fiscal support would help. The ECB stands ready to amp up its stimulus further if and when deemed appropriate.

U.S. personal income and personal consumption expenditures in March fell 2.0% and 7.5%, respectively, and each of these contractions easily exceeded analyst expectations.

New U.S. jobless insurance claims rose 3.84 million last week, bringing the six-week total to 30.5 million workers. There were also roughly 18 million continuing jobless insurance claims filed last week.

Real GDP in 1Q in the euro area contracted 3.8% on quarter; that’s a straight quarter-to-quarter change and not expressed at an annualized rate. It was easily the steepest drop ever recorded in the 25 years of data and resulted in the largest on-year contraction (3.3%) since the summer of 2009.

French real GDP plunged 5.8% last quarter, most since at least 1949, after a 0.1% dip in the final quarter of 2019.

Italian GDP fell 4.7% on quarter and 4.8% on year.

Spanish GDP slumped 5.2% on quarter, transforming a 1.9% on-year advance in 4Q19 into a 4.1% on-year contraction in the first quarter of this year.

Austrian GDP sank 2.5% on month and 2.7% on year.

Unemployment in the euro area of 7.4% was still lower than a year earlier, but the jobless rate for youth increased 0.4 percentage points on month to 15.8%.

Swiss retail sales plunged by 6.2% on month and a record 5.6% on year during March.

German retail sales fell 5.6% last month, resulting in a 2.8% 12-month rate of decline.

The number of unemployed workers in Germany increased by 373K in March, lifting the jobless rate by 0.8 percentage points to 5.8%.

Brazilian unemployment went up 0.6 percentage points to a 10-month high of 12.2% in March.

The Swiss KOF index of leading indicators dropped to a record low reading of 63.5 in April, eclipsing the previous nadir of 68.5 in February 2009. The readings earlier this year had been 100.1 in January, then 101.8 in February and 91.7 in March.

There was also a record 17.9% March-vs-February collapse in French consumer spending.

Portuguese industrial production dropped 8.3% on month and 7.2% on year in March.

A 12.7% on-year decline in Irish retail sales last month was the most since January 2009.

Japanese retail sales in March fell 4.5% on month and 4.6% on year. Japanese industrial production in March fell 3.7% on month and 5.2% on year. Production was 4.5% lower in the first quarter than a year earlier, following a 3.0% average drop in 2019.

Japanese consumer confidence fell 9.3 points to a reading in April of 21.6, the lowest level recorded in this data series going back to mid-1992. On-year declines in March of Japanese housing starts and construction orders amounted to 7.6% and 14.3%.

Chinese purchasing manager surveys for April published today showed a 2-month low in the Caixin-compiled manufacturing index to 49.4. That’s still well above February’s low of 40.3 but down 0.7 points compared to March. Also, the government-authorized NBS monthly PMI indices printed at a 3-month high of 53.2 in non-manufacturing and a 2-month low of 50.8 in manufacturing.

The Russian manufacturing purchasing managers index dived 16.2 points to 31.3 in April, its lowest level since at least the summer of 1997.

New Zealand’s ANZ business confidence index printed at minus 66.6 in April, lowest since April 1988.

Business sentiment in Singapore deteriorated from -12 in the final quarter of 2019 to a 12-year low of -56 in the first quarter of 2020.

First-quarter Mexican GDP fell 1.6% both on quarter and on year.

Real GDP in Taiwan only dropped 1.5% last quarter.

Canadian monthly GDP was unchanged in February and 2.1% greater than a year earlier.

Quite a few price data reports were also released on this final day of April.

  • The U.S. personal consumption price deflator dropped 0.3 % in March, trimming its 12-month rate of increase by a half percentage point to 1.3%. Core PCE inflation slid to 1.7% from 1.8%.
  • Euroland CPI inflation slowed 0.3 percentage points to a 43-month low in April of 0.4%. The energy component was negative 9.6%, while core CPI was at +0.9%.
  • On-year CPI inflation in Italy, France, Spain, Austria, and Portugal during April was zero percent, 0.4%, -0.7%, -1.5%, and 0%.
  • Canadian producer prices fell 0.9% on month and 2.4% on year in March.
  • Greek producer prices plunged 9.1% on year in March.
  • French producer price deflation doubled to a year-on-year 2.7% in March.
  • Filipino producer prices were 5.4% below their year-earlier level in March.
  • Australian import prices dropped 1.0% on quarter and rose 0.9% on year in 1Q.

Overnight dollar losses as of mid-morning in New York ranged from -0.1% against the yen, euro and yuan to -0.6% relative to sterling.

Stock markets in Asian were well bid but did a 180 degree turn in Europe. Share prices rose 2.1% in Japan, 3.3% in Indonesia, 3.1% in India, and 1.3% in China. Equities in Europe are down 2.7% in the U.K., 1.8% in Italy and France, 1.7% in Spain and 1.6% in France. U.S. markets show a drop of almost 1%.

The sharp rebound in the price of WTI oil was extended today by 17%.

On this final day of April, ten-year sovereign debt yields are broadly lower.

As April draws to an end, there have been a total of 3,248,186 identified Covid-19 cases and 229,349 deaths from the disease. These figures undoubtedly understate the true numbers but nonetheless represent increases from 802,831 cases and just 39,022 deaths a month ago. Even so, politicians around the world are chomping at the bit to loosen stay-at-home restrictions.

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

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