Market and Economic Commentary for the Week-Ending 05/22/2020
Events Week Ahead: The US is releasing the second estimate of Q1 GDP in the
coming week, alongside durable goods orders, personal income and outlays, and
PCE price index. Other GDP updates will be keenly watched, including for India,
Turkey, Brazil and Canada. Elsewhere, all eyes turn to the Eurozone business
survey and inflation rate, Germany retail sales, China industrial profits, and
Japan consumer confidence, industrial production and retail trade. Meanwhile,
the Bank of Korea will probably cut interest rates when it meets on Thursday.
US Stocks
Close Mixed, Book Strong Weekly Gains
Wall Street closed mixed on Friday as investors gauged US-China tensions amid ongoing uncertainty about the pace of economic recovery and the easing of restrictions. President Donald Trump warned on Thursday that he would react strongly to China's plan for a national security law in Hong Kong, raising concerns over the Phase One trade deal's continuity. Overnight, China released a bill to impose new national security measures on Hong Kong to prevent further anti-government protests. The Dow Jones lost 9 points or less than 0.1% to 24,465. In contrast, the S&P 500 climbed 7 points or 0.2% to 2,955. The Nasdaq added 40 points or 0.4% to 9,325. During the week, the Dow gained 3.3% and posted its biggest weekly advance since April 9th, boosted by optimism over an eventual COVID-19 vaccine and the easing of coronavirus-related restrictions. The S&P 500 the Nasdaq also rose more than 3%. US stock markets will be closed on May 25th for Memorial Day.
Wall Street closed mixed on Friday as investors gauged US-China tensions amid ongoing uncertainty about the pace of economic recovery and the easing of restrictions. President Donald Trump warned on Thursday that he would react strongly to China's plan for a national security law in Hong Kong, raising concerns over the Phase One trade deal's continuity. Overnight, China released a bill to impose new national security measures on Hong Kong to prevent further anti-government protests. The Dow Jones lost 9 points or less than 0.1% to 24,465. In contrast, the S&P 500 climbed 7 points or 0.2% to 2,955. The Nasdaq added 40 points or 0.4% to 9,325. During the week, the Dow gained 3.3% and posted its biggest weekly advance since April 9th, boosted by optimism over an eventual COVID-19 vaccine and the easing of coronavirus-related restrictions. The S&P 500 the Nasdaq also rose more than 3%. US stock markets will be closed on May 25th for Memorial Day.
China
Abandons 2020 Economic Growth Target
China will not set a 2020 economic growth target, amid great uncertainty due to the COVID-19 pandemic, Premier Li Keqiang said in a speech at the country's annual parliament meeting. It is the first time Beijing has not set a target for its GDP since the government began publishing it in 1990. Meanwhile, the target for CPI is around 3.5%, compared to 3% in 2019. The leader assured that fiscal policy in the country will be more proactive and monetary stance will be more flexible this year, adding that 2020 budget deficit of at least 3.6% of GDP, above last year's 2.8%, and quota on local-government special bond issuance at CNY 3.75 trillion. Beijing will also issue CNY 1 trillion in special treasury bonds for the first time this year, while expecting higher M2 growth as well as total social financing.
China will not set a 2020 economic growth target, amid great uncertainty due to the COVID-19 pandemic, Premier Li Keqiang said in a speech at the country's annual parliament meeting. It is the first time Beijing has not set a target for its GDP since the government began publishing it in 1990. Meanwhile, the target for CPI is around 3.5%, compared to 3% in 2019. The leader assured that fiscal policy in the country will be more proactive and monetary stance will be more flexible this year, adding that 2020 budget deficit of at least 3.6% of GDP, above last year's 2.8%, and quota on local-government special bond issuance at CNY 3.75 trillion. Beijing will also issue CNY 1 trillion in special treasury bonds for the first time this year, while expecting higher M2 growth as well as total social financing.
US Initial
Jobless Claims Top 2.4M
The number of Americans filling for unemployment benefits eased to 2.438 million in the week ended May 16th, the lowest level since the coronavirus crisis began more than two months ago. Still, filings came in slightly above market expectations of 2.4 million and lifted the total reported since March 21st to 38.6 million. On a non seasonally adjusted basis, the biggest increases in jobless claims were reported in California, New York, Florida, Georgia, Washington and Texas. The 4-week moving average, which removes week-to-week volatility, eased for a fourth straight week to 3.042 million, while continuing jobless claims hit a new record of 25 million in the week ended May 9th.
The number of Americans filling for unemployment benefits eased to 2.438 million in the week ended May 16th, the lowest level since the coronavirus crisis began more than two months ago. Still, filings came in slightly above market expectations of 2.4 million and lifted the total reported since March 21st to 38.6 million. On a non seasonally adjusted basis, the biggest increases in jobless claims were reported in California, New York, Florida, Georgia, Washington and Texas. The 4-week moving average, which removes week-to-week volatility, eased for a fourth straight week to 3.042 million, while continuing jobless claims hit a new record of 25 million in the week ended May 9th.
US Existing
Home Sales Plunge to 2009-Lows
Sales of previously owned houses in the US sank 17.8 percent from the previous month to a seasonally adjusted annual rate of 4.33 million units in April of 2020, barely in line with market expectations of 4.3 million. It is the lowest reading since September of 2009 and the biggest drop since July of 2010 as the coronavirus took a toll on the economy. Sales declined in all four regions. Single-family home sales went down 16.9 percent to 3.94 million and existing condominium and co-op sales slumped 26.4 percent to 0.390 million. There were 1.47 million houses available, the lowest on record for the month; at April's sales pace, it would take 4.1 months to clear the current inventory, higher than 3.4 months on March. The median house price increased 2.2 percent to USD 286,800.
Sales of previously owned houses in the US sank 17.8 percent from the previous month to a seasonally adjusted annual rate of 4.33 million units in April of 2020, barely in line with market expectations of 4.3 million. It is the lowest reading since September of 2009 and the biggest drop since July of 2010 as the coronavirus took a toll on the economy. Sales declined in all four regions. Single-family home sales went down 16.9 percent to 3.94 million and existing condominium and co-op sales slumped 26.4 percent to 0.390 million. There were 1.47 million houses available, the lowest on record for the month; at April's sales pace, it would take 4.1 months to clear the current inventory, higher than 3.4 months on March. The median house price increased 2.2 percent to USD 286,800.
Dollar Rises
Helped by Safe-Haven Demand
The dollar index was up 0.4% at 99.8 against a basket of currencies on Friday, as growing tensions between the US and China sent investors rushing for safety. China announced on Thursday it would impose a new security law on Hong Kong that could see mainland intelligence agencies set up bases in the former British colony, drawing a warning from President Donald Trump that Washington would react "very strongly" if that happened. For the week, the dollar index was down about 0.6%.
The dollar index was up 0.4% at 99.8 against a basket of currencies on Friday, as growing tensions between the US and China sent investors rushing for safety. China announced on Thursday it would impose a new security law on Hong Kong that could see mainland intelligence agencies set up bases in the former British colony, drawing a warning from President Donald Trump that Washington would react "very strongly" if that happened. For the week, the dollar index was down about 0.6%.
Brent Falls
on US-China Tensions, Posts 8% Weekly Gain
Brent crude futures fell 2.6% to settle at $35.13 a barrel on Friday amid doubts about how quickly the global economy would recover from the coronavirus crisis, after Washington and Beijing clashed over the imposition of a new national security legislation on Hong Kong. President Donald Trump warned that his administration would react "very strongly" if China decides to go ahead with its plan. At the same time, investors worried about China's economic outlook after the government refrained from setting a 2020 GDP growth target for the first time. On a weekly basis, Brent gained 8% on optimism about a potential COVID-19 vaccine, the easing of coronavirus-related restrictions, falls in US crude inventories and data showing the US rig count dropped to a record low for a third straight week.
Brent crude futures fell 2.6% to settle at $35.13 a barrel on Friday amid doubts about how quickly the global economy would recover from the coronavirus crisis, after Washington and Beijing clashed over the imposition of a new national security legislation on Hong Kong. President Donald Trump warned that his administration would react "very strongly" if China decides to go ahead with its plan. At the same time, investors worried about China's economic outlook after the government refrained from setting a 2020 GDP growth target for the first time. On a weekly basis, Brent gained 8% on optimism about a potential COVID-19 vaccine, the easing of coronavirus-related restrictions, falls in US crude inventories and data showing the US rig count dropped to a record low for a third straight week.
The coronavirus pandemic brought an extraordinary amount of uncertainty and
considerable risk to the economy, FOMC minutes showed. Interest rates will be
kept near zero until a recovery is firmly in place and the Federal Reserve is
committed to using a full range of tools to support the US economy. Fed
officials also noted that a second wave of the coronavirus outbreak with another
round of strict restrictions could drag the US economy deeper into recession
prompting a jump in unemployment and renewed downward pressure on inflation.
Powell
Defends Trillion-Dollar Stimulus Efforts
Federal Reserve Chairman Jerome Powell, who testified along with Treasury Secretary Steven Mnuchin at a virtual hearing of the Senate Banking Committee, defended the government’s trillion-dollar stimulus efforts in response to the coronavirus pandemic and added that more fiscal aid may be needed. Powell also said the central bank is committed to using a full range of tools to support the US economy endure the coronavirus-driven slump. The Fed left the target range for its federal funds' rate unchanged at 0-0.25 per cent on April 29th.
Federal Reserve Chairman Jerome Powell, who testified along with Treasury Secretary Steven Mnuchin at a virtual hearing of the Senate Banking Committee, defended the government’s trillion-dollar stimulus efforts in response to the coronavirus pandemic and added that more fiscal aid may be needed. Powell also said the central bank is committed to using a full range of tools to support the US economy endure the coronavirus-driven slump. The Fed left the target range for its federal funds' rate unchanged at 0-0.25 per cent on April 29th.
Fed Prepared
to Use Full Range of Tools
The Federal Reserve is committed to using a full range of tools to support the economy in this challenging time, Fed Chair Powell said in prepared remarks of his testimony before the Senate Committee on Banking, Housing, and Urban Affairs. Powell added that the Fed has been entrusted with an important mission, and has taken unprecedented steps in very rapid fashion over the past few months. The tools used so far are for times of emergency and when economic and financial conditions improve, the central bank will put these tools back in the toolbox. Fed Chair also added that interest rates at expected to be left at 0% until the economy has weathered recent events and is on track to achieve maximum-employment and price-stability goals.
The Federal Reserve is committed to using a full range of tools to support the economy in this challenging time, Fed Chair Powell said in prepared remarks of his testimony before the Senate Committee on Banking, Housing, and Urban Affairs. Powell added that the Fed has been entrusted with an important mission, and has taken unprecedented steps in very rapid fashion over the past few months. The tools used so far are for times of emergency and when economic and financial conditions improve, the central bank will put these tools back in the toolbox. Fed Chair also added that interest rates at expected to be left at 0% until the economy has weathered recent events and is on track to achieve maximum-employment and price-stability goals.
Fed Sees US
GDP Plunging by 30%
The US economy could shrink by an annualized 30% in the second quarter of 2020 and the unemployment rate could jump to as high as 20%-25%, Federal Reserve Chair Jerome Powell told CBS’s 60 Minutes program on Sunday. Still, he does not see a Depression-like scenario in the long term and there is a good chance for the economy to grow in the second half of the year, if the coronavirus does not erupt in a second wave. However, the recovery process could last until the end of next year. Powell also added that the Fed was “not out of ammunition by a long shot” and was ready to expand its lending programmes if needed although negative interest rates are not an appropriate policy.
The US economy could shrink by an annualized 30% in the second quarter of 2020 and the unemployment rate could jump to as high as 20%-25%, Federal Reserve Chair Jerome Powell told CBS’s 60 Minutes program on Sunday. Still, he does not see a Depression-like scenario in the long term and there is a good chance for the economy to grow in the second half of the year, if the coronavirus does not erupt in a second wave. However, the recovery process could last until the end of next year. Powell also added that the Fed was “not out of ammunition by a long shot” and was ready to expand its lending programmes if needed although negative interest rates are not an appropriate policy.
US Housing
Starts Sink 30%
Housing starts in the US plunged 30.2% month-over-month to an annualized rate of 0.891 million in April of 2020, below market forecasts of 0.927 million. It is the lowest reading since February of 2015 due to the coronavirus pandemic. Starts for the volatile multi-family segment slumped 40.3% to 0.234 million while single-family housing which is the largest share of the housing market, went down 25.4% to 0.65 million. Declines in housing starts were seen in all regions: the South (-26% to 0.532 million), the West (-43.4% to 0.184 million), the Midwest (-14.9% to 0.131 million) and the Northeast (-42.6% to 0.044 million). Year-on-year, housing starts sank 29.7%. Figures for March were revised upwards to 1.276 million from 1.216 million.
Housing starts in the US plunged 30.2% month-over-month to an annualized rate of 0.891 million in April of 2020, below market forecasts of 0.927 million. It is the lowest reading since February of 2015 due to the coronavirus pandemic. Starts for the volatile multi-family segment slumped 40.3% to 0.234 million while single-family housing which is the largest share of the housing market, went down 25.4% to 0.65 million. Declines in housing starts were seen in all regions: the South (-26% to 0.532 million), the West (-43.4% to 0.184 million), the Midwest (-14.9% to 0.131 million) and the Northeast (-42.6% to 0.044 million). Year-on-year, housing starts sank 29.7%. Figures for March were revised upwards to 1.276 million from 1.216 million.
US Building
Permits Plunge to 5-Year Low
Building permits in the United States fell 20.8 percent from a month earlier to a seasonally adjusted annual rate of 1.074 million in April 2020, the lowest level since January 2015 and compared with market expectations of 1 million. Single-family authorizations were down 24.3 percent to a five-year low of 669 thousand, while permits for the volatile multi-segment dropped 14.2 percent to a rate of 405 thousand, the lowest since March 2016. Across regions, permits were down in the South (-14.7 percent to 617 thousand), West (-28 percent to 250 thousand), Midwest (-16.1 percent to 146 thousand) and Northeast (-45.5 percent to 61 thousand).
Building permits in the United States fell 20.8 percent from a month earlier to a seasonally adjusted annual rate of 1.074 million in April 2020, the lowest level since January 2015 and compared with market expectations of 1 million. Single-family authorizations were down 24.3 percent to a five-year low of 669 thousand, while permits for the volatile multi-segment dropped 14.2 percent to a rate of 405 thousand, the lowest since March 2016. Across regions, permits were down in the South (-14.7 percent to 617 thousand), West (-28 percent to 250 thousand), Midwest (-16.1 percent to 146 thousand) and Northeast (-45.5 percent to 61 thousand).
Baltic Index
Enjoys Best Week in Over a Year
The Baltic Exchange's main sea freight index booked its biggest weekly gain in over a year at the end of May, boosted by higher demand for larger vessels, with the capesize segment notching up its best week on record. The index had slumped to negative territory in the week ended May 15th as the coronavirus-led global lockdowns hit demand and movement of freight. Meanwhile, the full impact of COVID-19 on supply chains is still unknown, with business leaders expecting problems to remain even as countries start to reopen their economies. Renewed tensions between the Trump administration and China over the coronavirus crisis and Beijing's plan for a national security law in Hong Kong sparked fears over further supply constraints.
The Baltic Exchange's main sea freight index booked its biggest weekly gain in over a year at the end of May, boosted by higher demand for larger vessels, with the capesize segment notching up its best week on record. The index had slumped to negative territory in the week ended May 15th as the coronavirus-led global lockdowns hit demand and movement of freight. Meanwhile, the full impact of COVID-19 on supply chains is still unknown, with business leaders expecting problems to remain even as countries start to reopen their economies. Renewed tensions between the Trump administration and China over the coronavirus crisis and Beijing's plan for a national security law in Hong Kong sparked fears over further supply constraints.
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