End of Lockdowns in Sight?
MORE COUNTRIES REPORT PLANS FOR ENDING LOCKDOWNS The global number of confirmed coronavirus cases globally has continued to move up. However, growing signs that the pace of the pandemic’s spread has peaked is leading to a growing number of countries either easing lockdown restrictions or announcing intentions to do so in the near future. In Europe, France, Italy and Spain all laid out detailed programmes to gradually lower their curbs from early May. In the US, a state-by-state approach is being taken with some already announcing a loosening up. Some Asian countries have also outlined plans. In the UK, the government has said that it will release ten papers by the weekend outlining the measures that each sector of the economy will be expected to take as the current restrictions are eased. Those documents are not expected to give any detail of the likely timetable for ending the lockdown but PM Johnson on Thursday, when he took the daily coronavirus press conference for the first time since his illness, promised a “roadmap” next week. An update is required by 7th May at the latest as then the current lockdown order expires. Meanwhile, amid news from both the UK and the US on progress in developing a covid-19 vaccine, EU Commission President Van der Leyden will host a conference call of global leaders to discuss the financing of further research. Despite declines late in the week after profit warnings from some tech companies it has generally been another good week for equities as the recovery continues from the mid-March lows. US equity prices are up around 30% from that point (and April was the best month for US stocks in more than 30 years), while European markets have also risen strongly. Meanwhile, the US dollar has depreciated which has allowed sterling to continue its appreciation from its March lows.
Markets seem prepared for now to weather very weak near-term economic data and profit reports and focus on the possibility of a second half rebound. They have been helped this week by supportive comments from central banks. The US Fed and the Swedish central bank left policy unchanged at their latest meetings but promised further support if necessary. Meanwhile, the ECB added to its previous measures by launching another lending scheme and lowering the interest rate on one of its existing schemes. Possibly most crucial for markets is the promise from central banks that policy will continue to be very loose for a long period of time offering asset prices the ongoing support of low interest rates and ample liquidity.
BANK OF ENGLAND ON HOLD FOR NOW The Bank of England’s Monetary Policy Committee will give a policy update on Thursday. This will include the release of the latest Monetary Policy Report and a briefing rather than the usual press conference. We think that they will probably leave policy unchanged for now. There have been suggestions that it may make some adjustments to its asset purchase programme. However, the recent relative stability of markets weakens the case for adding to the programme, while it may be seen as premature to start tapering purchases. At the present rate of transactions the MPC still has until July to make a decision on any adjustment. Whatever the outcome a key message is likely to be that the Bank stands ready to offer more support to the economy if needed. The BoE faces a tricky task in conveying the current uncertainties in the MPR and so may present a range of scenarios rather than a single report. It will also release an interim financial stability report. The policy announcement will be earlier than usual at 7am with the briefing at 10am.
US UNEMPLOYMENT ROSE SHARPLY IN APRIL The coming week’s relatively light data calendar is expected to provide more evidence of the huge near-term slump in economic activity across most countries. Most eye catching is likely to be Friday’s US labour market report which is predicted to show a monthly fall in employment of over 20 million for April. That is likely to push the unemployment rate to a multi-year high above 16% (compared to a peak rate during the last recession of only 10%). Weekly initial jobless claims are continuing at previously unprecedented levels (albeit at a slower pace than a few weeks ago) suggesting that the unemployment rate may still move higher. The ISM non-manufacturing index (Tue), which is expected to have fallen very sharply in April, will provide a further reminder of the unprecedented scale of the downturn.
UK AND EUROZONE DATA RELEASES REMAIN VERY WEAK
In the UK, the final reading for the April services PMI is expected to be revised down slightly from the initial estimate (of 12.3) to a new all-time low of 11.9. The April construction PMI (which unlike its manufacturing and services siblings is not previously released as an initial estimate) is forecast to have dropped to 19.0 from 39.3 in April. However, indications from European Commission data out earlier this week are that the GfK consumer confidence measure will be revised up very modestly to -32 from -34. That is still a very low level but the slight bounce possibly reflects growing hopes of an easing in lockdown restrictions. Final readings for April Eurozone manufacturing and services are expected to be unchanged from their initial estimates which showed big drops in activity during the month. There will also be April data for countries such as Italy and Spain who don’t publish ‘flash’ readings. March industrial production data for France, Germany, and Italy and Eurozone retail sales will provide more colour on the scale of the downturn of the region’s economy. The European Commission is scheduled to publish updates of its economic forecasts on Thursday. This will almost certainly see big downgrades to growth estimates in line with those made by other organisations such as the IMF. Finally, China’s April Caixin services PMI (Wed) will provide further evidence on the strength of the rebound post lockdown.
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