Weak Data and Revised Forecasts Deliver A Reality Check

June 9, 2020

The mood of investors has turned bearish again. The 10-year U.S. Treasury yield fell four basis points and is 8 bps below its recent high. 10-year Japanese JGB and British gilt yields slipped 3 and 1 basis points overnight.

The price of WTI oil settled back 0.6%, while that of gold, which benefits from risk aversion, moved 0.7% higher.

Safe-haven paper currencies like the dollar, Swiss franc and yen performed well overnight. The greenback is up 1.2% against the Australian dollar, 1.1% versus the kiwi, 1.0% relative to the peso, 0.5% vis-a-vis the loonie, 0.4% against sterling and 0.2% versus the yuan. The key EUR/USD pair is steady, however, and the dollar has fallen 0.4% against the Swiss franc and 0.3% versus the yen.

Share prices in Europe show losses so far of 1.8% in Spain, 1.6% in the U.K. and Germany, 1.5% in Italy and 1.4% in France. Asian markets closed mixed. While bourses dropped 2.3% in New Zealand, 1.2% in India, and 0.7% in Indonesia, Japan’s Nikkei fell just 0.4%. Moreover, stocks climbed 2.4% in Australia, which was closed Monday, and by 1.1% in Hong Kong, 0.6% in China and 0.2% in Taiwan.

The World Bank revised its projected 2020 global growth forecast to minus 5.2% from +2.5% predicted at the beginning of the year. Real GDP is now expected to contract by 9.1% in Euroland, 8.0% in Brazil, 7.1% in South Africa, 6.1% in the United States and Japan, and 3.2% in India. Chinese GDP is forecast to rise only 1.0%.

The usually cautious NBER, which officially determines turning points in the U.S. business cycle, has declared that America’s record-long economic expansion ended four months ago. By comparison, the last recession wasn’t called until December 2008, a year after it began, and the recession before that was called in November 2001 when in fact that downturn was just ending and eight months after it started. The early calling of the current recession attests to its severity, which will exceed that of the Great Recession and be the deepest contraction since the Depression.

The drop in Euroland GDP last quarter was revised down 0.2 percentage points to 3.6% and resulted in a 3.1% contraction compared to GDP in the first quarter of 2019. Employment fell 0.2% last quarter, its first drop since the second quarter of 2013. Among components of real GDP last quarter, personal consumption, business investment, exports and government spending posted non-annualized quarterly declines of 4.7%, 4.3%, 4.2%, and 0.4%. Unplanned inventory building mitigated the slide of GDP by 0.3 percentage points.

Japanese average cash earnings slid 0.6% in April, which was the worst result in nine months. Real cash earnings fell by 0.7%. Japanese machine tool orders in May were 52.8% below their year-earlier level. A 36.7% on-year drop in the final quarter of 2019 has been greatly intensified by the Covid-19 pandemic.

Germany’s current account surplus imploded to a 116-month low of EUR 7.7 billion in April, down from EUR 25.6 billion in March and 20.6 billion euros a year earlier. Merchandise exports fell 24.0% below March’s level and posted their greatest 12-month rate of decline (31.1%) since at least 1950. The seasonally adjusted trade surplus of EUR 3.2 billion was down from EUR 12.8 billion in March and EUR 21.4 billion in February.

France posted its largest current account deficit in April (EUR 5.381 billion) since mid-2014. An on-year 32.9% plunge in exports was the most since the summer of 1999.

Portuguese exports and imports in April were 39.8% and 39.1% lower than a year earlier.

In Hungary, exports and imports respectively dived 30.1% and 20.4% in April from a year earlier, and the country experienced its first trade deficit in 16 years.

Denmark’s current account surplus, in contrast, widened DKK 2 billion on year to a 5-month high in August of DKK 16.5 billion.

Romanian GDP growth in the first quarter of 0.3% was only a fourth as much as in the final quarter of 2019, cutting on-year growth to a 23-quarter low of 2.4%. GDP had risen 4.1% in 2019.

Dutch factory output dived 11.0% on year in April, its biggest on-year slide since the Great Recession. Dutch CPI inflation remained in May at April’s 2-year low of 1.2%.

Swiss unemployment rose to a 38-month high in May.

Australia’s business confidence and business conditions indices improved partly in May to -20 and -24. Back in January such had printed at -1 and +2.

The U.S. NFIB small business sentiment index likewise rebounded a bit from April’s 7-year low of 90.9 to 94.4 in May but remained very depressed compared to February’s 104.5 level.

Global and U.S. reported Covid-19 infections so far now have been found in 7.227 million and 2.027 million people, respectively.

The FOMC will announced the results of this week’s Fed policy review tomorrow. There will be a press conference by Chairman Powell, and the group’s forecasts will be updated.

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


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