More Weak Data, More Holiday Closures, and a Few Monetary Policy Reviews

May 5, 2020

Markets didn’t trade today in China (Labor Day), Japan (Children’s Day), or South Korea (also Children’s Day). Share prices elsewhere in the Pacific Rim went up 1.6% in Australian, 1.1% in Hong Kong, 0.9% in Malaysia (aided by an interest rate cut), and 0.5% in Indonesia and Taiwan. India’s Sensex index fell 0.8%, but European equities have experienced an up day, with rises so far of 1.5% in Germany, 1.4% in the U.K. and France, 0.9% in Italy, 0.8% in Switzerland and 0.6% in Spain.

The dollar advanced 0.5% overnight against the euro and Swiss franc. Germany’s constitutional court ruled on a partial basis against Bundesbank participation in the ECB’s asset purchase stimulus. The greenback was also well bid against the Turkish lira and Indian rupee. The mixed dollar performance so far today however includes declines of 0.8% against the Mexican peso, 0.3% relative to the Australian and New Zealand currencies, and 0.1% vis-a-vis sterling.

In commodity trading, the big story has been a 10% leap in the price of West Texas Intermediate crude oil to near $22.50 per barrel. Gold has slipped 0.7%.

The ten-year U.S. Treasury and German bund yields moved in opposite directions, the former rising two basis points and the latter sliding two basis points today. The British gilt yield is steady.

The case and death counts from Covid-19 worldwide now stands at 3,665,471 and 252,952, respectively. Two new ominous epidemiological studies project a reacceleration of the U.S. death rate over the course of May just as many places relax stay-at-home restrictions.

Australia’s construction purchasing managers index, compiled by AIG, lunged to a record low of 21.6 in April from 37.9 in March, 42.7 in February and 47.3 at the start of 2020.

Australia’s service sector PMI, compiled by CBA, plunged 19 index points to a record low of 19.5 last month and was accompanied by a record low composite PMI of 21.7.

Non-oil purchasing manager indices for last month fell to record lows as well in Egypt of 29.7 and the United Arab Emirates of 44.1. The Saudi Arabian non-oil PMI (44.9) revealed a slightly less steep rate of contraction following March’s 127-month low reading of 42.4.

The British purchasing managers service sector index printed in April at 13.4. That’s a series low, meaning the fastest rate of contraction since at least 1996. The British composite PMI was similarly a record low at 13.8 in April, suggesting that second-quarter GDP is likely to contract by more than 7%.

British new car sales were 97.3% fewer last month than in April 2019 and at their lowest monthly level since 1946.

Thailand’s manufacturing purchasing managers index fell 9.9 index points in April to a record low of 36.8.

Retail sales volume in Hong Kong (-43.8%) posted a 12-month drop of over 40% for a second straight month in March, and it was the 14th consecutive month with negative on-year growth.

Swiss consumer sentiment for the second quarter of 2020 printed at a record low of -39.3 following readings of -9.4 in the first quarter and -10.3 in the final quarter of 2010.

Building permits in New Zealand dived 21.3% on month in March.

In Sweden, which did not impose a lockdown as did other European countries, real GDP last quarter fell only 0.3% and was still higher in year-on-year terms at 0.5%. However, industrial orders were 2.0% below their year-earlier level in March. Industrial production fell 0.4% on month in March.

Spanish consumer confidence fell to an 81-month low of 49.9 in April following index readings of 63.3 in March and 85.7 in February. Spain’s number of unemployed workers rose almost as much in April (2.83 million) as the record increase in the prior month of 3.02 million.

Indonesian GDP sank 2.4% last quarter, its biggest drop since the final quarter of 2009. Such was the second straight quarterly contraction, confirming a recession, and left GDP just 2.97% higher than a year earlier, which is the smallest on-year advance since late 2001.

Business confidence in Thailand slumped 10 index points to a 21-month low of 32.6 in March.

Retail sales in Singapore were 13.3% below their year-earlier level in March, representing the largest 12-month decline since September 1998 during the Asian debt crisis.

Other data released today attest to the dampening inflationary effect of the Covid recession.

Producer prices in the euro area slumped 1.5% in March, their greatest monthly drop since the Great Recession in 2008. Energy slumped 5.5%, while other producer prices collectively slid 0.2%. compared to March 2019, the PPI fell 2.8%.

Thailand’s PPI was 4.3% below its year earlier level in April versus a 1.6% on-year drop in March and a 0.8% on-year increase in January.

Romanian PPI inflation slowed to 0.7% in March from 2.8% in February and 4.7% in January.

Consumer price inflation in Thailand of -3.0% in April was much more negative than March’s 0.5% decline. CPI inflation had been +1.1% in January.

Swiss consumer prices were 1.1% lower than a year earlier in April due to a 0.4% month-on-month decline. Both comparisons were weaker than predicted, and the 12-month decline was the most in 52 months.

The Reserve Bank of Australia left its official cash rate unchanged at 0.25%. The OCR had been lowered twice in March by 25 bps each time and is at a record low. According to a released statement from Governor Lowe, Australian financial markets have been better behaved thanks to the rate cuts and other monetary support measures. It has lately taken fewer asset purchases to pin the 3-year bond yield to its target of 0.25%, but the Board is prepared to increase bond purchases if needed. Australia’s economy faces a very difficult period. GDP is likely to crater 10% in the first half of this year if baseline assumptions hold, and inflation will only average a sub-target 1-1.5% next year. The OCR will not be raised before clear progress in reducing unemployment and restoring the 2-3% inflation target occurs.

Bangko Negara Malaysia cut its overnight policy rate by 50 basis points to 2.0%. Including 25-basis point reductions in January and March, that brings the total decline thus far in 2020 to a full percentage point. These cuts have been complemented by other monetary and financial measures according to a released statement. It notes that “widespread containment measures globally, international border closures and the consequent weak external demand environment will exert a larger drag on domestic economic activity,” and muted inflationary pressure is projected as well.

The Central Bank of Brazil will also be reporting its monetary policy decision today.

Just in: The U.S. goods and services trade deficit rose 11.6% to $44.415 billion in March, and the Canadian trade gap ballooned 57.8% to C$ 1.411 billion. These reports exemplify the downward trend in two-way global commerce. This was happening even before the Covid-19 pandemic but has been now accentuated. U.S. export and import levels were at a 40-month low. Most of post-WW2 history saw trade flows outpace GDP growth. That’s now changed.

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

Tags: , ,


Comments are closed.