US initial jobless claims dropped -58k to 1508k in the week ending June 13. Four-week moving average of initial claims dropped -235.5k to 1773.5k.
Continuing claims dropped -62k to 20544k in the week ending June 6. Four-week moving average of continuing claims dropped -1092k to 20815k.
BoE kept Bank Rate unchanged at 0.1%, by unanimous vote, as widely expected. The Committee also decided, by 8-1 vote, to increase the asset purchase target by GBP 100B to GBP 745B. Chief Economist Andrew Haldane dissented and voted for keeping the asset purchase target unchanged at GBP 645B.
On the economy, BoE noted that GDP contracted by around -20% in April. But “evidence from more timely indicators suggests that GDP started to recover thereafter”. While unemployment rate was unchanged at 3.9% in the three months to April, “other and more timely indications from the claimant count, HMRC payrolls data and job vacancies suggest that the labour market has weakened materially”. Business surveys also suggest a “weak outlook for employment in coming quarters”. The “collapse in global oil prices” had direct effects on the slow down of inflation to 0.8% in April, “Sharp drop in domestic activity is also adding to downward pressure on inflation”.
Looking ahead, “the emerging evidence suggests that the fall in global and UK GDP in 2020 Q2 will be less severe than set out in the May Report”. But there is risk of “higher and more persistent unemployment”. “The economy, and especially the labour market, will therefore take some time to recover towards its previous path.”
SNB left sight deposit rate unchanged at -0.75% as widely expected. The central bank “remains will to intervene more strongly in the foreign exchange market”. The overall expansionary monetary policy “remains necessary”.
Inflation forecast is revised sharply lower. SNB projects inflation to bottom at -1.2% in Q2 2020, and stay negative with gradually improvement till Q2 2021. Inflation is not expected to turn positive until Q2 2022. The downward revision was primarily due to “significantly weaker growth prospects and lower oil prices”. The conditional inflation forecast is based on assumption that the policy rate remains at -0.75% over the horizon.
On Swiss economy, SNB expects the low points in term of activity came in April, and GDP decline is likely to be stronger in Q2 than in Q1’s -2.6%. Despite positive developments since May, SNB anticipates “there will be only a partial recovery” for the time being. GDP “will not return quickly to its pre-crisis level”. GDP is likely to contract by -6% in 2020, worst since oil crisis in 1970s.
In SNB’s baseline scenario for the global economy, further waves of coronavirus infections will be “successfully prevented”. But consumption, investment and demand is “likely to remain moderate for the time being”. Production capacity will be “underutilised for some time yet”. Inflation is likely to “remain modest” in most countries.
BoE is widely expected to expand stimulus today, through expansion of the quantitative easing program. The asset purchase target would be increased by GBP 100B to GBP 745B. There are some expectations of further increase later in the second half of the year. Bank rate would be held unchanged at 0.10%. BoE officials have ruled out negative interest rate for the near term. As Chief economist Andy Haldane suggested, BoE is “not remotely closed” to negative rates. Though, discussions will likely be carried out on the topic.
Suggested readings on BoE:
Sterling is trading relatively mixed in this week, without a clear direction. GBP/CHF could be a focus as it was rejected by both 55 day and 4 hour 55 EMA, which suggests some downside biases. Break of 1.1837 temporary low will resume the fall from 1.2259. Further break of 1.1716 key near term support will argue that whole rebound from 1.1102 has completed. And deeper fall would be seen then to retest 1.1102 low.
SNB rate decision will be a focus in the markets today. It’s widely expected to keep expansionary monetary policy unchanged. Sight deposit rate should be held at -0.75%. It will also reiterate that “negative interest and interventions are necessary to reduce the attractiveness of Swiss franc investments and thus counteract the upward pressure on the currency.”
Ahead of the policy decision, SNB also released the Financial Stability Report today. it’s noted that “economic and financial conditions for the Swiss banking sector deteriorated markedly during the last few months of the reporting period:. The coronavirus pandemic “triggered a significant correction on financial markets and a sharp drop in global economic activity”. Economic and financial outlook “has worsened considerably” and is “subject to unusually high uncertainty”.
Australia employment contracted -227.7k in May, nearly double of expectation of -125.0k. After the decline, 12.2m people were employment. Full-time jobs dropped -89.1k to 8.54m. Part-time jobs dropped -138.6k to 3.62m. Unemployment rate rose 0.7% to 7.1%, worse than expectation of 7.0%. That’s also the highest level in 19 years since October 2001. Participation rate also dropped -0.7% to 62.9%.
“The ABS estimates that a combined group of around 2.3 million people – around 1 in 5 employed people – were affected by either job loss between April and May or had less hours than usual for economic reasons in May,” Bjorn Jarvis, head of labour statistics at the ABS said.
New Zealand GDP shrank -1.6% qoq in Q1, worst than expectation of -1.0% qoq. That’s also the largest decline in 29% as the initial effects of coronavirus restrictions impacted on economic activity. “The 1.6 percent fall surpassed quarterly falls during the global financial crisis in the late 2000s,” national accounts senior manager Paul Pascoe said. “It is the largest quarterly fall since the 2.4 percent decline in the March 1991 quarter.”
Finance Minister Grant Robertson said “the biggest impact of the global recession and Alert Level 4 public health restrictions will be seen in the current June quarter.” He added, “now, our focus is on protecting jobs and supporting the economy to recover and rebuild through the investments made in Budget 2020 and by the COVID Response and Recovery Fund. By opening up the economy quicker than forecast, we’ve got a head start on our recovery.”
Cleveland Fed President Loretta Mester said in a speech yesterday that she expected to see “an improvement in the second half of the year as the economy reopens”. However, “it will take quite some time for economic activity and job levels to approach more normal levels”. The improvements will also “vary across sectors”. Some industries like travel and leisure and hospitality will “take quite a while longer “.
By the end of 2020, the output level will see be about 6% below its level at the end of last year. Unemployment would be around (% while inflation will remain below the 2% goal “for some time to come”.
She added that it “makes sense” to continue to monitor the economy and to “to remember that there are several different scenarios that could play out, and to stand ready to use all of our tools to mitigate lasting damage and to support the economy’s recovery”
US commercial crude oil inventories rose 1.2m barrels in the week ending June 12. At 539.3m barrels, oil inventories are about 15% above the five year average for this time of the year. Motor gasoline inventories dropped -1.7m barrels. Distillate fuel inventories dropped -1.4m barrels. Propane/propylene inventories rose 2.7m barrels.
XTI/USD is steady in range after the release. For now, further rise could still be seen as long as 31.23 near term support holds. But, considering loss of momentum as seen in daily MACD, upside should be limited by 42.05 support turned resistance to bring near term reversal. Break of 31.23 support will confirm short term topping and bring deeper pull back.
Canada CPI turned deeper negative at -0.4% yoy in May, down from -0.2% yoy in April, below expectation of 0.0% yoy. Prices rose in four of the eight major components on a year-over-year basis. Transportation prices contributed the most to the decline in the CPI, mainly because of lower gas prices compared with May 2019. Food prices (+3.1%) remained high in May, with the largest year-over-year increase among the major components.
CPI common dropped to 1.4% yoy, down from 1.6% yoy, missed expectation of 1.6% yoy. CPI median dropped to 1.9% yoy, down from 2.0% yoy, matched expectations. CPI trimmed dropped to 1.7% yoy, down from 1.8% yoy, matched expectations.
Eurozone CPI was finalized at 0.1% yoy in May, down from April’s 0.3% yoy. Core CPI (ex-energy, food, alcohol & tobacco) was finalized at 0.9% yoy, unchanged from April’s reading.
EU CPI was finalized at 0.6% yoy in May, down from April’s 0.7% yoy. The lowest annual rates were registered in Estonia (-1.8%), Luxembourg (-1.6%), Cyprus and Slovenia (both -1.4%). The highest annual rates were recorded in Poland (3.4%), Czechia (3.1%) and Hungary (2.2%).
UK CPI slowed further to 0.5% yoy in May, down from 0.8% yoy, matched expectations. That’s the lowest level since 2016. Nearly all categories of prices contributed to the decline in CPI, except food and non-alcoholic beverages. Core CPI dropped to 1.2% yoy, down from 1.4% yoy, matched expectations too.
Also released, RPI slowed to 1.0% yoy in May, down from 1.5% yoy, missed expectation of 1.3% yoy. PPI input came in at 0.3% mom, -10.0% yoy, versus expectation of -4.0% mom, -8.7% yoy. PPI output was at -0.3% mom, -1.4% yoy, versus expectation of -0.1% mom, -0.9% yoy. PPI output core was at 0.0% mom, 0.6% yoy versus expectation of 0.1% mom, 0.7% yoy.
The Thomson Reuters/ INSEAD Asian Business Sentiment index plunged to 35 in Q2, down from 53. That’s a 11-year low, and the second time the index fell below 50. Around 16% of the 93 companies surveyed said a “deepening recession” was a key risk for the next six months. More than half expects declining staffing and levels and business volumes.
“We ran this survey right at the edge when things were getting really bad,” said Antonio Fatas, economics professor at global business school INSEAD. “We can see this complete pessimism which is spread across sectors and countries in a way that we haven’t seen before.”
RBNZ Governor Adrian Orr said he’s “very pleased” with the impact of the central bank’s QE program. As for the next steps in monetary easing, he’s confidence that there are “plenty of tools”. But for now, the main game in town is about fiscal policy.
Orr added the next steps for RBNZ could include an increase in the size of QE, and the number of instruments included in the program. Also, negative case rate is still a possibility.
Fed Vice Chair Richard Clarida said in a speech yesterday that before the current downturn, long-term inflation expectations were already “at the low end” of the range that’s consistent with Fed’s objective. Give the “likely depth of this downturn”, inflation expectations are “at risk of falling below” that range.
Hence, “I will place a high priority on advocating policies that will be directed at achieving not only maximum employment, but also well-anchored inflation expectations consistent with our 2 percent objective,” he added. “Depending on the course of the virus and the course of the economy, more support from both fiscal and monetary policy may be called for,” he added.
In the Semiannual testimony to Congress, Fed Chair Jerome Powell said some recent indicators have pointed to a”stabilization”, and in some ares a “modest rebound” in economic activity. However, levels of output and employment remain “far below their pre-pandemic levels”. “Significant uncertainty remains about the timing and strength of the recovery”. He warned “until the public is confident that the disease is contained, a full recovery is unlikely.”
Powell also noted that “the longer the downturn lasts, the greater the potential for longer-term damage from permanent job loss and business closures. ” In particular, the coronavirus pandemic is “presenting acute risks to small businesses”, which are the “heart of our economy and often embody the work of generations.”.
As for inflation, indicators of long-term inflation expectations have been “fairly steady”. “As output stabilizes and the recovery moves ahead, inflation should stabilize and then gradually move back up over time closer to our symmetric 2 percent objective.” Nonetheless inflation is likely to remain below target “for some time”.
US retail sales rose 17.7% to USD 465.5B in May, wall above expectation of 7.6% mom. Ex-auto sales rose 12.4% mom, above expectation of 5.1% mom. Ex-gasoline sales rose 18.0% mom. Ex-auto, ex-gasoline sales rose 12.5%. For the period Mar through May, headline sales dropped -10.5% yoy from the same period a year ago.
Germany ZEW Economic Sentiment rose further to 63.4 in June, up from 51.0, beat expectation of 60.0. That’s the third consecutive month of increase. Current Situation improved slightly to -83.1, up from 83.5, above expectation of -84.8. Eurozone ZEW economic sentiment rose to 58.6, up from 46.0, beat expectation of 53.4. Eurozone Current Situation rose 5.4 pts to -89.6.
“There is growing confidence that the economy will bottom out by summer 2020. This is reflected in the renewed rise of the ZEW Indicator of Economic Sentiment as well as the more optimistic assessment of the current situation. The expected earnings for the individual sectors in Germany still vary greatly. Earnings expectations are strongly negative for export-oriented sectors such as automotive and mechanical engineering, as well as the financial sector. In contrast, forecasts are fairly positive for information technologies, telecommunications and consumer-oriented services. The financial market experts continue to expect only a slow increase in economic value added in the third and fourth quarters,” comments ZEW President Achim Wambach.
UK unemployment rate was unchanged 3.9% in the three months to April, much better than expectation of a surge to 4.5%. Average earnings including bonus rose 3.0% 3moy, sharply lower from April’s 2.3%, missed expectation of 1.3%. Average earnings excluding bonus rose 1.7% 3moy, down from 2.7%, missed expectation of 1.8%.
In May, claimant counts rose 528.9k, larger than expectation of 370k. April’s claimant count increase was revised to 1032.7k. Combined, The total 2801.7k claimant account as recorded in May was as 125.9% increase since March, i.e., the start of the coronavirus pandemic.
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Philly Fed manufacturing outlook turned positive to 27.5, future activity hit 30-year high
Philadelphia Fed Manufacturing Business Outlook rose notably to 27.5 in June, up from -43.1. That’s also the first positive reading since February. Future activity index rose 17pts to 66.3, hitting the highest level in nearly 30 years. New orders (16.7), and shipments (25.3) returned to positive territory after negative readings over the past few months. Employment stayed week despite improvement, with numbers of employees at -4.3 and average employee workweek at -6.5.
Full release here.