The weekly macro review for w/c 6 April 2020 – The sheer weight of the emerging US and global unemployment picture indicates that the demand shock from C-19 shutdowns will likely be significant.
Late in the week, the US Fed announced a further $2.3t in funding for several facilities designed to enable, essentially bridging finance, to a range of organisations in the US economy. This is the Fed stepping in as the backstop – both directly and indirectly, keeping rates low and ensuring the flow of credit within the financial system. Love it or hate it, these actions are helping to keep the US financial system on life support. It’s likely we’ll see continued upgrades and expansion of this support with the Fed essentially plugging gaps in liquidity if and when required.
While the financial system remains on life support, the economic situation is worsening. Whether these firms survive post C-19 is another story. The central question is – how quickly will demand return? When, if ever, will spending patterns “return to normal”?
In the last 3 weeks, over 16m US workers made an initial unemployment claim. This includes another alarming 6.6m initial claims this week. Mortgages applications declined again – as unemployment increased and uncertainty remains high. Home-owners/borrowers are taking advantage of the forbearance provision of the CARES Act with a significant number of borrowers applying for the program. Data for Mar highlighted that motor vehicle sales fell by a third versus the month prior. Within that, auto retail sales fell to the lowest monthly pace on record (going back to 1976).
Consumer sentiment data for early Apr continued to deteriorate – recording the largest fall in the series history. The Apr fall in sentiment around current economic conditions indicates just how hard consumers have been hit so far. We cannot discount the possibility that lasting damage has been done to spending patterns and that a swift ‘V’ shaped recovery is not likely.
Consumer sentiment data highlights that expectations about future conditions was not quite as negative. This was based on the expectation that quarantine measures would only be temporary. It’s becoming obvious that shut-downs, in various forms, will likely continue.
What is also becoming apparent is the complexity and magnitude of the task to ‘restart’ a highly integrated, just-in-time, global supply chain.
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 13 April 2020 – This week we begin to get more data for Mar to start rounding out the view of the initial economic impact of the C-19 shutdown.
From the US this week, initial and continuing claims will remain a key focus, as well as new mortgage applications. Of note will be retail sales and industrial production for Mar. We will also get a first view of NY and Philadelphia manufacturing conditions for Apr.
Chinese GDP for Q1 will be released. Also, Mar data for China’s international trade, retail sales, industrial production and fixed asset investment.
In Australia, the focus will be on the labour market report for Mar and consumer and business confidence reports also for Mar.
This week w/c 13 Apr will see continued heavy US Treasury issuance especially for ST bills. The US Treasury will settle approx. $512bn in ST Bills, Notes and Bonds, including four (4) Cash Management Bills (CMB’s) this week, raising approx. $262bn in new money for the week. It is possible that additional CMB’s will be added this week.
The final total of US Treasury issuance settling last week w/c 06 Apr was $509bn in ST bills, raising approx. $308bn in new money for the week.
This week, the NY Fed will purchase approx. $150bn (last week $205bn) in Treasury Securities and approx. $75bn (last week $100bn) in MBS.
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
