#OECD: Richest nations face $17tn government #debt burden from coronavirus.
Archives of “Economy” category
rssBOJ statement: maintains short-term interest rate target at JGB yield target
Bank of Japan monetary policy meeting decision announcement
- maintains short-term interest rate target at -0.1%
- maintains 10-year JGB yield target around 0%
- keeps monetary policy steady
- decides on details of new loan scheme aimed at boosting lending to small, mid-sized firms hit by coronavirus pandemic
- will set aside 75 trln yen for new loan programme to combat coronavirus impact
- will extend deadline of programme until march 2021
- won’t hesitate to ease further if needed
- will conduct loans under new lending program from June
UK May flash services PMI 27.8 vs 24.0 expected
Latest data released by Markit/CIPS – 21 May 2020
- Prior 13.4
- Manufacturing PMI 40.6 vs 37.2 expected
- Prior 32.6
- Composite PMI 28.9 vs 25.7
- Prior 13.8
Much like the euro area readings earlier, this just reaffirms the bottoming in business activity seen in April with things improving in the month of May – relative to the prior month.
The details still aren’t pretty though as rapid declines are still seen in new work and employment across the UK private sector, with both rates contracting further – only outpaced by the record decline seen in April.
Markit notes that:
“The UK economy remains firmly locked in an unprecedented downturn, with business activity and employment continuing to slump at alarming rates in May. Although the pace of decline has eased since April’s record collapse, May saw the second largest monthly falls in output and jobs seen over the survey’s 22-year history, the rates of decline continuing to far exceed anything seen previously.
“Travel and tourism firms, hotels, restaurants and producers of consumer goods such as clothing were again the hardest hit, reflecting virus containment measures, but this remains a shockingly broad-based downturn with very few companies left unscathed by the COVID-19 pandemic.
“An improvement in business confidence about the year ahead for a second successive month is welcome news, and the easing of restrictions in coming months should help boost activity in some sectors as we head into the summer.
“However, the UK looks set to see a frustratingly slow recovery, given the likely slower pace of opening up the economy relative to other countries which have seen fewer COVID-19 cases. Virus related restrictions, widespread job insecurity and weak demand will be exacerbated by growing business uncertainty regarding Brexit. We are consequently expecting GDP to fall by almost 12% in 2020. While the quarterly rate of decline looks likely to peak at around 20% in the second quarter, the recovery will be measured in years not months.”
The full report can be found here.
Japan preliminary PMIs (May): Manufacturing 38.4 (prior 41.9) & Services 25.3 (prior 21.5)
Jibun Bank / Markit preliminary PMIs for May
Manufacturing 38.4
- prior 41.9
Services 25.3
- prior 21.5
Composite 27.4
- prior 25.8
Joe Hayes, Economist at IHS Markit:
- “Latest PMI data provide yet another shocking insight into the devastating impact of the COVID-19 outbreak. While the rate of decline in services activity has eased very slightly, plummeting demand for goods is finally catching up with the manufacturing sector, which posted an accelerated decline in production during May.
- “Taking the April and May PMI surveys together, we see that both are indicative of GDP falling at an annual rate in excess of 10%. It is clear that the economy is going to contract for a third successive quarter, with the hit to Q2 likely to be potentially as large as 20% on the previous year.
- “Nevertheless, the dynamics in the economy are clearly evolving. As Japan eases the state of emergency measures, the services economy can begin its gradual recovery. However, the damage to the manufacturing sector could continue to worsen as global trade conditions deteriorate and the global economic recovery is slow.”
Global monetary policy.
Japan – Core Machinery Orders for March -0.4% m/m (expected -6.7%)
Not as bad as expected, data from Japan – Core Machinery Orders for March
-0.4% m/m
- expected -6.7%, prior 2.3% m/m
-0.7% y/y
- expected -8.6%, prior -2.4% y/y
A capex indicator for Japan in the months ahead. The data point is a volatile one.
Reuters Tankan (May) – Business sentiment hits decade lows
Reuters report on their monthly Tanakn survey for May 2020:
- slump in Japan business mood deepens, hits decade lows again on coronavirus woes
Manufacturers index -44 in May vs -30 in April, falls to lowest level since June 2009
- non-manufacturers index -36 vs -23 … lowest level since Dec 2009
Manufacturers august index seen at -51
- non-manufacturers -48
The BOJ easy money policy is firmly entrenched, such a dire outlook in Japan. The extent you use central bank policy to assist your currency view, bearish yen.
Germany May ZEW survey current situation -93.5 vs -86.0 expected
Latest data released by ZEW – 19 May 2020
- Prior -91.5
- Expectations 51.0 vs 30.0 expected
- Prior 28.2
- Eurozone expectations 46.0
- Prior 25.2
Despite the headline reading slipping a little bit more – reflecting more subdued economic conditions – optimism is actually growing that there will be an economic turnaround in Germany and Europe from the summer onwards.
ZEW notes the significant improvement in expectations for most sectors of the economy as growth is expected to pick up pace again starting from Q4 2020.
That said, ZEW reaffirms that any return in economic output back to pre-coronavirus levels will take a long time and is only seen around 2022 at this stage.
Bundesbank: German Q2 economic activity significantly below that of Q1
Comments by the German central bank in its monthly report
- Sees momentum picking up later in Q2 as lockdown is lifted
- Construction sector to be more robust than the rest of the economy
- Fiscal support plan should be targeted, temporary
- Some 6 million workers in state wage support during the month of April
A couple of token remarks from the Bundesbank with the headline pretty much reaffirming what we all already know about the German – and Eurozone for that matter – economy.
Later this week we will be getting the May preliminary PMI reports from the euro area and they should reflect a decent improvement relative to the historically low figures from April.
But even then, just take note that the bounce in PMI will not reflect the true loss of economic activity since PMI survey sentiment is largely based off one question i.e. how are business conditions compared to last month?
In that sense, the economic situation in May is certainly better than in April as lockdown measures are slowly being eased but it is definitely still way off pre-virus levels.
Japan GDP for Q1, preliminary: GDP -0.9% sa q/q (vs. expected -1.1%)
Japanese economic growth in the January to March quarter of 2020 – this the preliminary release
GDP -0.9% sa q/q
- expected -1.1%, prior -1.8%
GDP -3.4% annualised sa q/q
- expected -4.5%, prior -7.1%
GDP -0.8% nominal q/q
- expected -1.3%, prior -1.5%
GDP deflator (an inflation indication) %
- expected 0.7%, prior 1.2%
Private consumption -0.7%
- expected -1.6% q/q, prior -2.8%
Business spending -0.5% (capex)
- expected -1.5%, prior -4.6%
More:
- 2 consecutive quarters of contraction for the Japanese economy, the economy moves into recession for the first time since H2 of 2015
- Q1 exports had their biggest drop q/q since the 2nd quarter of 2011, down 6%
January and February were stable to slowly picking up for Japan but the outbreak in March hit economic growth. The April to June quarter is likely to be even worse, with a more prolonged impact. Restrictions were imposed by the April 7 national emergency declaration shutting many restaurants, large retail outlets, hotels and more. The restrictions were partially lifted on May 14, but are still in place for Tokyo and Osaka, the two largest cities in Japan.
Yen doing little.