The weekly macro review for w/c 16 March 2020 – More countries, as well as individual US states, have tightened quarantine measures in an effort to slow the spread of the Coronavirus. This is having significant impacts on economic activity – not to mention enormous social impacts. Governments and central banks are ramping up stimulus, safety net support and liquidity measures.
Major central banks made out-of-cycle announcements on policy changes and further accommodations during the week. There was further co-ordinated central bank action to address USD shortages during the week.
On Mar 20, the EC proposed activating the ‘general escape clause of the Stability and Growth Pact’ – allowing member states to respond with greater fiscal flexibility. In the US, a $1TR stimulus package was yet to be approved by the Senate at the time of writing (will likely pass with changes).
The combined Jan-Feb data for China started to show a severe impact – retail sales fell by over 23% (real terms), industrial production fell by 13.5% and fixed asset investment fell by 24.5%.
The Mar data for US, Europe and Asia will start to highlight the extent of the economic shock. Once the extent of this shock becomes apparent, there is likely to be some further calibration especially with required levels of fiscal stimulus.
US data this week – starting to show some impact in the hard data. The first two Mar regional manufacturing surveys both showed a significant fall in manufacturing activity. Initial jobless claims increased by 70k to 281k – and this is expected to get much worse next week (estimates are for initial claims to be in the millions). There was some softness in mortgage applications.
US housing – strength in West/South existing home sales in Feb, but conditions starting to weaken into Mar. Retail sales (val) already weakening in Feb – well before the oil price shock (from first week of Mar).
There are more data releases covered in the review document. Use the links on the contents page to navigate to different country sections. Download the review here;
The outlook for w/c 23 March 2020 – The human and economic cost of the spread of Coronavirus will remain the key focus. Quarantine requirements continue to be stepped up across countries and regions. There is some good news in the form of slowing growth in the number of new cases in some regions (due to quarantine), including Asia, that are further along in this outbreak.
The fall-out for the financial markets continues. Central banks continue to implement measures to ease liquidity issues.
The focus now starts to shift to the understanding the extent of economic shock and how fiscal stimulus will be applied. This week, we will start to gauge that impact with the prelim PMI’s for Mar across the US, Europe and Asia. Two other important data points will be US Initial Jobless Claims from last week (20 Mar) and the final version of the University of Michigan Consumer Sentiment for Mar. Estimates for Initial Jobless Claims from last week have hit extreme levels (millions) – and there was talk that this number may not be released.
The supply of US Treasuries settling this week will remain heavy. The US Treasury will settle approx. $236bn in ST Bills, a FRN and a new 79-day CMB this week, raising approx. $43.1bn in new money. The US Treasury will also auction approx. $125bn in Notes this week, to settle next week (raising approx. $42.5bn). Liquidity will be supported with further significant increases in repo operations each week, as well as purchases of Treasury securities by the Fed. There is still no forward schedule released for the planned purchases of securities – details to be released daily on the NY Fed website. On Mon 23 Mar, the Desk at the NY Fed will purchase approx. $75bn in Treasuries. While the results of purchase operations for last week have also not yet been released, the ‘planned’ purchases for last week totalled $275bn. Last week the Fed announced purchases of $500bn “over the coming months” – last week’s purchases represents over half of those planned purchases just in the first week. Further announcements from the Fed are likely as it looks for new ways to ease financial conditions.
More detail (including a calendar of key data releases) is provided in the briefing document – download the file here;
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
