Weekly Market Pulse - Week ending April 24, 2020
Markets started the week shaken by volatile moves in oil. Economic data continue to show weakness and the outlook remains shrouded by the coronavirus with no clear path of recovery. Markets regained ground later in the week as the U.S. passed another stimulus package worth US$484 billion to aid small businesses, as well as fund hospitals and testing. The S&P 500 fell 1.32%. The S&P/TSX composite rose a meager 0.42%.
Bond yields continued their downward trajectory as hard economic data continue to show persisting downside risks. The U.S. Treasury 10-year yield fell 4 basis points, ending the week at 0.60%. The Government of Canada 10-year yield fell 7 basis points, ending the week at 0.58%.
Oil made headlines this week as the expiring May futures contract turned negative for the first time ever. Oil prices promptly recouped much of the loss, ending the week down 5.97%. Gold prices rose 2.78% as bond yields fell, while copper prices stagnated.
Performance (price return)
As of April 24, 2020
Canada – February retail sales rise; March CPI falls on energy prices
Retail sales rose 0.3% in February, before social distancing measures had been widely implemented. Strong sales at motor vehicle dealers and general merchandise stores were partially offset by lower sales at clothing and food and beverage stores. Many retailers are expected to be negatively impacted by COVID-19 going forward.
March CPI fell 0.6%, translating to a 0.9% increase year-over-year. Consumer price growth was muted in almost all sectors due to the COVID-19 slowdown, while transportation and gasoline prices fell. Excluding energy, March CPI rose 0.1%. During the month, gasoline prices registered a 17.8% decline, in line with the fall in crude oil prices.
U.S. – US$484B stimulus package; Business activity continues to contract; Another 4.4M initial jobless claims; Durable goods orders fall
President Trump signed another US$484B coronavirus aid package into law. The interim fiscal package follows the US$2T relief package that was passed just weeks ago as the small business aid portion has already run dry, with many more businesses reportingly still awaiting aid. The latest pandemic relief package includes a US$320B Payment Protection Program to help struggling small businesses keep workers on payroll, as well as provide additional funding to hospitals, and for testing. Trump said state and local government aid would be part of the next package.
IHS Markit Flash U.S. Composite PMI fell to a new series low of 27.4 from 40.9 in March. Surveyed firms signalled an unprecedented decline in business activity in April among both goods producers and service providers. The Services Business Activity Index also fell to a low of 27.0, from 39.8, while Manufacturing PMI held up slightly better at 26.9, from 48.5. Output contracted as demand slumped. Temporary company closures, travel restrictions, and public health measures also weighed on orders. Firms continued reducing their workforce “at a rate far exceeding anything seen previously over the survey history at the start of the second quarter,” according to the report. The outlook also turned negative as firms expressed concerns with the uncertainty of the lockdown and social distancing measures, though some respondents were hopeful of a restart in the third quarter.
Initial jobless claims last week increased another 4.43M for the week ending April 18, less than the 5.25M increase the prior week. The total number of initial claims over the last five weeks now amounts to 26.4M. Although weekly jobless claim filings continue to decrease, the number is still extremely elevated compared to historical standards and is consistent with unemployment rate estimates of at least 15% in April.
Durable goods orders fell 14.4% in March, mostly attributed to declining civilian aircraft orders. Outside of transportation, durable goods orders were better than expected, falling only 0.2%. The weak backdrop in capital spending is likely to continue into the near future as the economic outlook remains murky and corporate profits fall sharply.
International – Germany ZEW Survey improved; Japanese PMIs saw record drops; South Korean trade weakened
Germany’s ZEW Survey Expectations bounced back strongly to 28.2 in April, from -49.5 in March. Market sentiment surrounding the economic development of the eurozone has improved significantly, and investors expressed confidence that the German economy would start seeing growth again as early as the third quarter. Meanwhile, the Current Situation fell another 48 points to -91.5, showing the severity of the downturn.
The Jibun Bank April PMI showed further weakness in both the manufacturing and services sectors in Japan. The manufacturing survey fell to 43.7, the lowest reading since April 2009, and the service survey dropped to 22.8, the lowest reading since the series began. Readings above 50 signal expansion, less than 50 a contraction.
The first 20 days of April showed South Korean exports fell 26.9% year-over-year while imports fell 18.6%. Oil imports dropped 50.1% year-over-year showing serious weakness in global trade activity.
Quick look ahead
Governments remain focused on the physical and economic battles against COVID-19. The news flow and events are highly fluid and change frequently. Expect the possibility of surprise announcements from central banks or governments.
Canada – February Monthly GDP (April 30); April Manufacturing PMI (May 1)
Canadian monthly GDP for February is expected to increase 2.2% year-over-year. The number is quite dated as the outbreak of COVID-19 has essentially stopped global economic activity. Given the StatsCan Nowcast estimate of a 9% fall in March GDP, the February number will not have much impact. Looking forward, the April Markit Manufacturing PMI will give a read on demand in the Canadian manufacturing sector.
U.S. – April Consumer Confidence (April 28); Q1 GDP and Fed Decision (April 29); Initial Jobless Claims (April 30); April ISM Manufacturing (May 1)
Consumer confidence comes out Tuesday and will give us a look at how households and consumers are feeling throughout the lockdown. On Wednesday we get Q1 GDP in the U.S., which is expected to decline for the first time in six years. Bloomberg consensus expects Q1 GDP to fall 4.0% quarter-over-quarter, annualized. The end of the first quarter was mostly affected by shutdowns in March, therefore most of the economic pain is expected in Q2. The Fed has its rate decision on Wednesday followed by a press briefing with Chairman Jerome Powell.
As explained in our previous weekly commentaries, initial jobless claims on Thursday will be closely monitored because it is the highest frequency and most accurate measure we have of mounting job losses in the U.S. Initial claims should be monitored every Thursday throughout this crisis.
Lastly, we get a read on future demand from the April ISM manufacturing survey which is expected to register around 36.1. (A reading below 50 for the ISM means the manufacturing sector is in contraction.)
International – Bank of Japan (April 27); China PMI (April 29); Euro-area Q1 GDP and ECB (April 30)
The Bank of Japan has its interest rate decision on Monday and is expected to expand support for companies to prevent bankruptcies and further increases in unemployment. Due to the virus, the central bank is expected to slash its projections for GDP and inflation. China’s April manufacturing and service PMIs are expected to see a continued recovery from the shutdowns in February and March.
The European Central Bank has its decision on Thursday, and it sees potential for a much deeper contraction than at its last meeting and is likely to continue to expand stimulus. Bloomberg Economics expects the size of the Pandemic Emergency Purchase Programme to be increased by 250 billion euros. Even though COVID-19 containment measures were limited until the final two weeks of March, first quarter euro area GDP growth was still severely impacted. Consensus expects euro area Q1 GDP to fall 3.3% year-over-year with a deeper contraction in Q2.