The weekly macro review for w/c 13 April 2020 – The sudden drop in output, sentiment and employment has so far been unprecedented. We expect this data to remain very weak until quarantine measures start to lift. In the US, and across many countries, stimulus is currently making its way through to households and businesses. This will provide some limited relief as many ride out these extremely difficult times.
Lock downs remain in place across many countries. The exception (for which we have data) is China – which is now lifting quarantine measures. Data this week reflects ongoing consumer weakness, as the sharp decline in retail sales continued in Mar. Industrial production declined at a slower pace, somewhat offset by a rebound in mining. Manufacturing remained weaker across more capital/durable goods sectors while non-durables such as food production continued to grow. Exports rebounded in Mar after a much weaker Feb. The Chinese economy shrank at a record pace in Q1. A sign of things to come for many countries.
In the US, new unemployment claims remained at extreme (high) levels this week. In the last four weeks, over 22m people have filed for unemployment benefits. Housing market conditions fell sharply. The weekly MBA survey highlighted that the purchase index remains weak (down 35% from the start of Mar) – a 4-6wk leading indicator of housing sales.
A look at two regional manufacturing surveys for the first full month of Apr highlighted record-breaking declines across indicators of current activity. The two surveys only differed in the view of conditions in six months’ time. From the NY Empire State survey, one of the hardest hit states by the virus, firms only expected a slight improvement in conditions in six months’ time. From the Philly Fed survey – firms were far more optimistic about conditions in six months’ time.
Retail sales contracted sharply in Mar – with motor vehicle sales and food service the largest drags on growth. Unsurprisingly, grocery sales were very strong. Delivery of stimulus checks in the US commenced on 13 Apr – either electronic or by mail.
The Aus labour market report reflects the conditions the week prior to the implementation of containment policies in mid Mar – little change overall. By late Mar, business confidence for Australia had fallen hard, recording the largest decline in the survey history. Similarly, business conditions deteriorated notably in the month across trading, profitability and employment. The Westpac consumer sentiment survey for Apr shows how far sentiment has fallen since the lock-down came into effect – recording the single largest monthly decline in the survey history. While many of the fiscal support packages have been announced, issues remain with implementation (difficulty in registering for programs etc) and payments are yet to commence.
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 20th April 2020 – Several important points to note this week.
Firstly, the US Fed announced further reductions in purchases of Treasury and Mortgage securities for the week. This week, the NY Fed will purchase approx. $75bn in Treasury Securities (last week $150bn, prior week $205bn) and approx. $50bn in MBS (last week $75bn and prior wk $100bn).
The number of term repo operations has also been halved from four operations a week last month to two operations a week this month. The twice daily O/N operations remain unchanged.
At the same time, US Treasury issuance remains very heavy amid increased fiscal spending. This week w/c 20 Apr, the US Treasury will settle approx. $413bn in ST Bills, including three (3) Cash Management Bills (CMB’s), raising approx. $224bn 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 13 Apr was $542bn in ST bills, Notes and Bonds raising approx. $292bn in new money for the week.
Finally, on the data front, the key highlights this week will be the prelim PMI’s for Apr across the US, Europe and Asia.
Other releases of note for the US will be initial jobless claims for last week, the final read of consumer sentiment for Apr, durable goods orders for Mar and existing home sales for Mar.
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
