More Evidence of Deep and Global Economic Downturn

April 24, 2020

Dollar movements on the final day of the week have been comparatively modest and somewhat mixed against other major currencies.

The price of West Texas Intermediate crude oil extended its rebound but is currently still down 7.6% since last Friday’s close. Gold is little changed.

Further substantial declines of 9-10 basis points have occurred today in the 10-year sovereign debt yields of Italy, Spain and Portugal. Their German and Japanese counterparts are down 4 and 1 basis points, while the 10-year Treasury yield is flat.

It’s been a down day for most stock markets. In Asia, equities closed down 0.9% in Japan, 1.1% in China, and 0.6% in Hong Kong. Share prices have fallen 1.0%, 0.8%, and 0.7% in Germany, France and Great Britain. The U.S. market opened higher but has faded to show little net change.

The IFO Institute’s monthly index of Germany’s business climate fell more abruptly than forecast to a record low of 74.3 in April following readings of 85.9 in March and 96.0 in February. The readings for current conditions, future expectations, service sector activity, and trade also were at alltime lows. Manufacturing dropped 25.7 points to a 133-month low of -44.4, and construction’s month-to-month decline of 22.6 points was the steepest ever. IFO officials characterized business sentiment as “catastrophic,” even though Germany has experienced fewer coronavirus cases and deaths than Euroland’s other largest economies.

Japan’s all-industry index, a monthly proxy of GDP, fell 0.6% in February, reversing January’s advance and resulting in a 2.1% declined compared to a year earlier. Japan also reported a 33.4% on-year plummet in department store sales last month and CPI total and core inflation of only 0.4% in March. Consumer prices failed to record a seasonally adjusted positive monthly change in the first quarter. Also, corporate service prices (CSP) edged up a mere 0.1% on month in March after a net 0.3% decline between November and February. On-year CSP inflation was 1.6% despite a 2.0 percentage point national sales tax hike last October. Japan in 2020 is still struggling to purge deflation once and for all, and the Covid-19 depression could expose other major economies to a similar risk.

The Central Bank of Russia engineered its 7th policy interest rate cut since last June. The total decline over this period amounts to 225 basis points. Five of those earlier reductions had been by 25 basis points, and officials at the March monthly policy review had not cut rates further because of concern over ruble depreciation and its potential upward effect on inflation. But a big change in official caution has occurred over the past month as the full extent of the pandemic and global recession has emerged. A released statement after today’s announced key rate cut to 5.50% from 6.0% warns of “material and prolonged disinflationary influence on price dynamics from the aggregate demand perspective,” which is likely to outweigh upside forces caused by currency depreciation among other things. The changed landscape justifies shifting to an accommodative monetary stance, and further cuts in the 5.5% policy interest rate are likely to become necessary. Real GDP is seen dropping 4-6% in Russia this year, and inflation is projected to stabilize around 4%.

U.S. durable goods orders plunged 14.4% in March.

British retail sales volume fell 5.1% on month and 5.8% on year in March.

The indices of Czech business and consumer sentiment each dropped about 20 index points in April. Belgian business sentiment fell from a reading of -2.7 in February to -10.9 in March and a record low of -36.1 in April.

Spanish PPI inflation of -5.0% in March was the most deflationary in almost four years. Finnish producer prices that month were 5.6% lower than a year earlier, which was twice as much a decline as recorded in the year to February.

India’s index of leading economic indicators plunged 3.6% in April.

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


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