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WTO says indicators point to only partial uptick in world trade and output in Q3 2020

  
Analysis, Economy

Adds that the strength of any such recovery remains highly uncertain

Global
  • World merchandise trade likely registered a historic fall in Q2 2020
  • Additional indicators point to partial uptick in world trade, output in Q3 2020
  • But L-shaped trajectory – rather than V-shaped – cannot be ruled out
The WTO comments according to the latest reading of its goods trade barometer. That pretty much adds to some uncertainty surrounding the pace of sustainability of the recovery we have seen from May to July up until now.
There is undeniable evidence that the global situation has improved considerably since bottoming out in April but there are concerns that the recovery process may be running out of steam as “new normal” conditions prevail.
We’ll get a better idea on how this all plays out in the latter stages of Q3 and in Q4 but with global travel still not resuming, it is safe to assume that global economic conditions may run into some added headwinds sooner rather than later.

Japan trade balance for July Y +11.6bn (expected Y -86.5bn)

  
Analysis, Economy

Japan trade balance for July shows a surplus of 11.6bn yen, a beat

  • expected Y -86.5bn, prior Y -269.3bn

Trade balance adjusted Y -34.8bn

  • expected Y -45.3bn, prior Y -423.9bn

Exports -19.2% y/y ‘not as disastrous as expected’ is the new beat for exports

  • expected -20.9% y/y, prior -26.2%

Imports -22.3% y/y and ditto for imports

  • expected -23.0% y/y, prior -14.4%
Yen has shown a little strength on the session so far, USD/JPY has dropped under its US timezone lows.

Japan GDP preliminary for Q2 -7.8% q/q (vs. expected -7.5%)

  
Analysis, Economy
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Japan GDP preliminary for Q2 2020, capturing the impact of the COVID-19 outbreak and response

GDP sa -7.8% q/q  , a miss on already ugly low expectations

  • expected -7.5%, prior -0.6%

GDP annualised sa -27.8% q/q (ps when you see screaming headlines that Japan’s economy has shrunken 30% …. it hasn’t, but this is what the economically illiterate are referring to – you’ll know better)

  • expected -26.9%, prior -2.2%

GDP nominal -7.4% q/q

  • expected -6.5%, prior -0.5%

GDP deflator (an inflation indication) %

  • expected 1.7%, prior 0.9%

Private consumption -8.2%

  • expected -6.9% q/q, prior -0.8%

Business spending -1.5% … if there is some not quite so bad news to take away from the data release this smaller than expected drop in capex is it

  • expected -4.0%, prior -1.7%
This is the 3rd consecutive quarter of GDP contraction for Japan.
Japan is a net exporters, the decline in demand offshore has taken a heavy toll on shipments – Q2 exports fell at their fastest since Q1 2009 (GFC influence) and external demand has subtracted the biggest hit from GDP since 1980 (based on comparable data).
ps. yen is doing little on the data release.

German Ifo institute says companies expect business situation to return to normal in 11 months

  
Analysis, Economy

Ifo remarks based on their latest survey of businesses in the month of July

Germany
The survey shows that German firms are expecting business to return to normal in an average of 11 months with services sector companies expecting things to normalise in 11.7 months while manufacturing sector firms expect it in 10.1 months.
If ‘normal’ means a return to pre-virus conditions, I reckon that may be a little too optimistic for the time being. Just be mindful that considering the current virus situation, global travel will at least be dead until 1H 2021 at the very least.
That in turn will feed to lower demand conditions – especially for the services sector – and as more businesses are impacted, it will also lead to sluggish labour market conditions i.e. weaker consumer purchasing power and eventually hurt other sectors as well.

UK’s Sunak: There will be many more job losses in the coming months

  
Analysis, Economy

Comments by UK finance minister, Rishi Sunak, on the latest GDP report

  • UK economy is now in ‘hard times’, the figures today confirm that
  • Hundreds of thousands of people have already lost their jobs
  • Sadly, many more will in the coming months
The June monthly report was better-than-expected but it mainly just reaffirms sentiment that the economy is picking up further amid the easing of lockdown restrictions.
But as mentioned before, the government furlough program is still masking a lot of the underlying weakness in the economy for the time being.
As such, the outlook – especially in the latter stages of Q3 and Q4 – remains uncertain as there may be a bigger hit to the labour market, in turn the economy, moving forward.
Cable is now up to 1.3050 from around 1.3030 prior to the release of the figures but I don’t see this as being a material game changer for the pound. The dollar side of the equation still holds all the cards in trading at the moment.

German ZEW survey data highlights a broader longer-term theme for markets to consider

  
Analysis, Economy

Will the economic recovery eventually live up to the hype?

ZEW

ZEW2
One of the above charts is not a “V”. And therein lies a potential longer-term problem that market participants will have to consider down the road.
As we move on from Q2 to Q3, the expectation is that ‘the worst is behind us’ when it comes to the pandemic and the economic fallout from the virus crisis.
While that will certainly be true, what it doesn’t say is that the economic recovery and the path towards “normalisation” may perhaps take much longer than anticipated.
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