Greater Focus on the Economic Devastation of the Covid-19 Pandemic

May 6, 2020

The dollar appreciated overnight by 0.7% against the Mexican peso, 0.5% versus the British pound and Chinese yuan, 0.4% relative to the euro, 0.3% vis-a-vis the loonie, but just 0.1% against the Swiss franc and Aussie dollar. The dollar also lost 0.3% against the Japanese yen.

Japanese markets remained shut for the last of the Golden Week holidays — Constitution Day.

Equity markets climbed 1.8% in South Korea, 1.1% in Hong Kong, 0.8% in Singapore, 0.7% in India, and 0.6% in China. Momentum turned downward in Europe where stocks so far have lost 0.6% in France and 0.4% in Spain and Germany.

Ten-year sovereign debt yields have risen four basis points in Germany and 3 bps in both Great Britain and the United States.

The price of West Texas Intermediate crude oil relapsed 4.6%, and gold is down 0.4%.

The counts of Covid-19 global cases and deaths thus far are up to 3.75 million and 259 thousand people. America accounts for 33% of reported cases and 28% of the deaths but only has 4.3% of world population. President Trump is promoting a new stage in the war against the virus and touting the wonderful job the government is doing to combat the problem, but one can only imagine the words (like disgrace, disaster, and criminal) that he would be using instead if he were in Joe Biden’s position. The pandemic’s economic damage around the world has been underscored in data released today.

ADP’s estimate of U.S. private sector job losses during April is 20.2 million workers.

German industrial orders plunged 15.6% on month in March and 16% on year. The monthly drop was shared roughly equally by exports and domestic orders, and the decline was the greatest since German unification some 30 years ago.

Euro area retail sales volume dropped 11.2% on month and 9.2% on year in March, the latter being the largest decline in at least 24 years.

Between February and March, retail sales slumped 17.4% in France, 15.3% in Austria, 12.2% in the Czech Republic, and 9.1% in Poland. Australian retail sales, in contrast, rose 8.5%.

Indonesian real GDP fell 2.4% last quarter, the most in 41 quarters, and contributed to an eight-percentage point swing in on-year growth from +5% in the final quarter of 2019 to -3%. The on-year drop was the most since early 2001. Indonesian consumer confidence, meanwhile, plunged to a 141-month low of 84.8 in April after printing at 113.8 in March and 126.4 at the end of 2019.

Perhaps the grimmest picture emerges from some of the comments accompanying European service-sector and composite purchasing manager surveys released today.

Based on March and April data alone, the pandemic is already close to surpassing the net effect on Spain’s GDP seen during the global financial crisis and difficult years that followed.

The Italian services sector continued to suffer in the face of the COVID-19 pandemic in April, with latest survey data highlighting a further unparalleled reduction in activity. New business also declined at a record pace.

Any return to long-term growth rates in France might be gradual, with consumers
taking time to overcome hesitancy surrounding public health before they resume their previous spending habits.

It is likely to be several years before the output lost due to the virus outbreak is fully regained in the euro area.

Record low readings in service sector and composite purchasing manager indices were reached in April in Euroland (12.0 and 13.6), Germany (16.2 and 17.4), Ireland (13.9 and 17.3), France (10.2 and 11.1), Italy (10.8 and 10.9), Spain (7.1 and 9.2). In many cases, March scores had already plumbed record lows. The data suggest that Euroland GDP will drop at least 7.5% this quarter and not annualized.

Coincidentally, the EU Commission published its Spring 2020 updated forecasts today, which project a 7.7% plunge this year in Euroland GDP even while assuming a resumption of positive growth during the second half of the year.

In other purchasing manager releases today, Sweden’s service-sector index fell to a 134-month low of 39.0 from 46.1 in March and 56.4 in February. Sweden did not impose the kind of mandatory stay-at-home restrictions that many other nations did.

The British construction PMI plunged to a reading last month of 8.2 from 39.3 in March and 58.4 in January. April’s record low shattered the prior trough of 27.8 in February 2009. As with any of these diffusion indices, scores below 50 connote deterioration business conditions, and the further from 50 the faster is the rate of contraction.

Hong Kong’s private PMI reading of 36.9 rebounded slightly from 34.9 in March, but Singapore’s private purchasing managers index scored a record low of 28.1 after 33.3 in March and 51.4 back in January. Lebanon’s private sector PMI likewise dropped to a record low of 30.9, and so did South Africa’s PMI which fell 9.4 points to 35.1.

Then there is the case of India, whose service sector PMI swung from an 85-month high of 57.5 as recently as February to at least a 172-month low of 5.4 in April. India’s composite services plus manufacturing PMI tumbled 43.4 index points to a record low as well of 7.2 last month.

Many of the PMI releases underscore a wave of disinflationary pressure if not outright deflation. This is not the time for officials to even think of preemptively countering possible future inflation.

New Zealand labor costs last quarter rose 0.3% versus 4Q19 and by 2.4% from a year earlier. The jobless rate was 4.1% in the first quarter, and employment grew 0.7% on quarter.

Central Bank decisions will be announced in Brazil and Chile later today.

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

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