Another week, more COVID-19 news, more poor economic data, more weak earnings reports, more confusion for investors to process.
GDP reports from some countries will be weak, the US jobs data at week’s end terrifying, Westpac’s actual profit or loss later today could be stunning; China’s trade data for April could tell a different story on the export side than the March data showed.
Here the Reserve Bank won’t change anything at its May meeting tomorrow and the earnings season around the world continues, with this week in the US to be dominated by legacy media.
The week rounds off with the US employment report at 10.30pm on Friday night, Sydney time. It is the major announcement globally for the week.
Federal Reserve chair Jay Powell last week warned that the unemployment rate could spike into double digits.
The AMP’s Chief Economist, Shane Oliver says based on jobless claims the jobs data “are likely to show a 22 million plunge in payroll employment and a massive rise in unemployment to 16% (from just 4.4% in March and 3.5% in February).
Markit Economics Chief Economist, Chris Williamson warned on Friday in his weekly commentary that “Worse will likely follow. US GDP has already fallen at a 4.8% annualised in the first quarter and our GDP tracker points to a 37% plunge in the second quarter.
“Brace yourselves for some grim data,” Williamson warned in this week’s outlook.
Before that comes the latest employment benefits claims figure for the US – it will be down from the 3.8 million last week (and 4.4 million the week before that). More than 30 million people have applied for claims and more are still waiting because of red tape and delays.
It could very well be a loud bang to the end of the week and the start of a month or more miserable data.
This week sees more surveys of April manufacturing and services in Asia, India and Europe.
With measures taken to contain the COVID-19 outbreak having intensified in many countries April, especially in the US and Europe, the economic impact appears to have been commensurately greater.
“Manufacturing PMI data for China, already released up to April, have meanwhile shown only a very modest recovery, suffering a re-acceleration in the rate of export decline, hinting strongly that the recovery could fade,” Williamson wrote.
Thursday sees the Bank of England rate-setters’ reaction to news of the UK economy contracting at an unprecedented rate in April.
Other data releases for the US will see a worsening in the US trade deficit for March and a sharp fall in the non-manufacturing conditions survey April (both due Tuesday).
The Fed’s lending officer survey (Monday) will provide some guide as how much banks have tightened lending standards. There have already been reports of tough rules for home mortgages.
Europe is waiting for a decision from the German Constitutional Court’s on the legality of the European Central Bank’s 2014-16 quantitative easing program. While historical, it could have a major bearing on the ECB’s current 750 billion euro program.
A negative ruling could reduce the ability of the ECB to limit the fallout of the current crisis.
If that happens, watch for an almighty sell-off in the euro and other markets and a surge in the value of key safe havens such as US treasuries, the greenback and gold. If the decision is favourable then markets will be encouraged.
In China, there are activity surveys for China’s service sector, but the big release will be the trade data for April on Thursday.
The AMP’s Dr. Oliver said the data “is likely to show some slowing in exports and imports after surprisingly stronger March data”. In fact, there could be some weakness in exports as demand in major markets like China, the US, and Europe falls.
In Australia, the Reserve Bank won’t be changing its stance on Tuesday because there’s no reason to do so. The AMP’s Dr Oliver says “The cash rate is at the RBA’s long-stated lower bound and there is no value in taking it negative, so it won’t be cut.”
“And in the meantime, we are yet to see the full extent of the hit to the economy from the coronavirus related shutdowns and it will take several years to fully recover so a rate hike is years away.
“We expect the cash rate to be stuck at 0.25% for at least the next three years.”
Dr. Oliver wrote in his end of week note “ The RBA may signal a further slowing in its bond-buying as markets have settled down after March’s turmoil and it may provide more detail around how it sees the economic outlook – probably by way of various scenarios – particularly in its Statement of Monetary Policy to be released Friday.”
Building approvals and final retail sales and trade data for March and the March quarter will be issued this week. Dr Oliver reckons there’s a big fall in approvals – 17%. Retail sales will be up – the preliminary estimate from the Australian Bureau of Statistics showed a rise of 8.1%
“On the data front expect a 17% fall in March building approvals (Monday), continuing weakness in payroll employment and wages (Tuesday), an 8% rise in March retail sales (Wednesday) consistent with preliminary data already released which will result in a real rise of around 2% for the March quarter, and a rise in the trade surplus for March (Thursday) to $6bn on the back of strong export data already released,” Dr Oliver wrote.
On Tuesday Federal Treasurer, Josh Frydenberg speaks at the National Press Club in Canberra to update us on the economy.
Besides Westpac’s results today, Orica is expected to release its interim figures on Friday.
Macquarie Group also releases its full-year report this Friday (not last Friday as reported last week).
