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Marshall Gittler’s Market Outlook: EUR, USD higher, CAD lower; US payrolls day!
Trends don’t last very long nowadays! CAD was the best performing currency on Wednesday after the Bank of Canada turned hawkish, but it was the worst performing currency on Thursday after Q1 GDP missed massively (fell to +1.3% qoq SAAR from 1.7%; rise to 1.8% expected). Oddly enough, the March mom figure actually beat expectations (+0.3% mom vs +0.2% expected) but clearly the quarterly data is considered more authoritative. Household spending was the weakest in three years and business investment slowed.
CAD got a second kick down the stairs on reports that the US administration will today impose duties on steel and aluminum from Canada, the EU and Mexico despite their calls for permanent exemptions. All three announced plans for retaliatory tariffs, meaning the trade war has begun. The fact that the US would start such a fight with some of the country’s closest allies based on some perceived threat to national security is a big big shock not only to the global trading system but to the traditional global political alignment. It’s a go-it-alone strategy that upends the entire post-WWII rules-based international economic system. I don’t see how this ends well for anyone.
If I may remind you, here’s a graph of what happened to the dollar when President Bush imposed tariffs on steel back in 2002. Not good!
The trade dispute is apparently the main issue at the G7 Finance Ministers and central bankers’ meeting now under way in Canada. There have already been comments from (not US) officials about how the tariffs are illegal. We’ll probably get an earful about it tomorrow when the press conferences are held (see below).
It was a rare day yesterday when both EUR and USD gained. EUR was aided by a higher-than-expected May consumer price index (CPI) (+1.9% yoy vs +1.6% expected, 1.2% previous). Of particular note was that core CPI also accelerated more than expected (+1.1% yoy vs +1.0% expected, 0.7% previous), indicating that higher oil prices aren’t the only thing behind the rise.
Plus, good news out of Italy! It looks as if the country can avoid another election. Law professor Giuseppe Conte, who was appointed PM initially but said he couldn’t form a government, will indeed become PM. The heads of the Five Star Movement and the League will be ministers in the new cabinet. Professor Paolo Savona, the euroskeptic who had initially been appointed Finance Minister, will be European Affairs minister. The Finance Minister role will go to economics professor Giovanni Tria. He’s been critical of the EU’s fiscal rules, but hasn’t advocated leaving the euro. Italian markets applauded the move; the 2-year bond yield, which fell 107 bps on Wednesday, was down another 63 bps, while the 10-year spread vs Germany came in by 9 bps. (Of course, the fact that the Italian Treasury bought EUR 500mn of the two-year bond may have helped!)
As for USD, I have to say – I can’t understand it. It was up vs six of its nine major counterparts despite the trade problems, the euro’s rebound, and personal consumption expenditure (PCE) deflators stable to lower, as was expected. Personal spending beat estimates but pending home sales missed. I can only presume that this is once again the dollar’s role as the “currency of last resort” when things get bad – the fall in stock markets may have sent money into USD. I would expect to see USD falling today as the market considers the impact of the trade war on the US.
My only other idea is that perhaps the dollar was boosted by some fairly upbeat comments on the US economy from Fed Gov. Lael Brainard, who confirmed the need for a continued gradual pace of rate hikes. Perhaps the key was when she said her outlook “suggests a policy path that moves gradually from modestly accommodative today to neutral—and, after some time, modestly beyond neutral—against the backdrop of a longer-run neutral rate that is likely to remain low by historical standards.” That suggests she sees rates steadily increasing towards 2.75%-3.00%, at which point the Fed would pause, wait a while, and then perhaps start hiking further. At one hike per quarter, this would imply steady hikes until June next year.
Happy Birthday ECB! Today is the 20 th anniversary of the founding of the ECB.
It’s NFP day today! The day we’ve all been waiting for, when the US releases the nonfarm payrolls (NFP).
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Despite the big build-up ahead of time, the NFP doesn’t seem to have that lasting an impact on the market. Looking at the last year’s worth, EUR/USD was generally higher a couple of days later no matter whether the figure beat estimates or missed estimates.
Although on average it does work – EUR/USD did gain on average when it missed, and fell on average when it beat. But that was largely down to two months (Feb 2020 and May 2020), when the dollar rallied tremendously in the following days. The February one, if you remember, was due largely to the average hourly earnings coming in higher. In May 2020, the unemployment rate unexpectedly fell to 6.5% from 6.6% (revised down from 6.7%). So there were positive surprises in other parts of the data then too.
Admittedly, even if we look just at the months when EUR/USD rose following the NFP, the rises tended to be less following beats than following misses, so I can’t really say the figures had no impact. But I wouldn’t suggest trying to play binary options based on these data (in fact, I wouldn’t suggest trying to play binary options at all, but that’s another story.)
Nonfarm payrolls is forecast to be up 190k. This is almost exactly the six-month moving average of the initial figure (193k). It would therefore represent no change in the employment situation either way. In this case however “no change” may mean continued pressure on the FOMC to change their view to four rate hikes this year from three, so it could be positive for the dollar.
The Bloomberg “whisper” number is slightly lower than the official economists’ forecast. We also now have a new market estimate: Bloomberg provides a “Twitter median forecast” that’s extracted from the Twitter stream. This may also give a good estimate of what traders and market participants are expecting, rather than economists. Note that the Bloomberg whisper is lower than the official “consensus” forecast from economists, and the Twitter estimate is lower still. That suggests some market participants are bracing for a negative surprise, which would also mean a figure in line with consensus could provide a boost for USD.
The unemployment rate is expected to remain at 3.9%, the lowest level in decades and well below the FOMC’s estimate of the long-run equilibrium unemployment rate, which is 4.5%.
The average hourly earnings figure however is expected to be little changed. The mom change is expected to be +0.2%, which is the most common change (see below), while the yoy rate of increase is expected to hold steady at 2.7%. Note that the “whisper” for the mom change is also lower (+0.1%) than the official economists’ forecast, as it is for the NFP as well.
Since 2020, the average hourly earnings figure has most often been up 0.2% mom. Otherwise, it’s pretty much a toss-up between +0.1% and +0.3%. So if I were forecasting the figure, I’d just go for +0.2% every month, figuring that that way I’d be right 36% of the time and just slightly off 41% of the time – a pretty good track record.
One interesting point: last Friday, when I first looked at the forecasts, the market was expecting +0.3%, but as more forecasts were updated it fell to +0.2%. The “whisper” number similarly fell from +0.2 to +0.1. So the market is gradually lowering its expectations for this number. That too gives us the possibility of an asymmetric response to a surprise – a bigger response to a positive surprise than to a negative one.
The day starts off with the final figures for the major Eurozone manufacturers’ purchasing manufacturers’ indices (PMI) and the PMIs for other countries.
The UK manufacturing PMI is usually the most important of these. It’s expected to decline further. Although it remains at a relatively high level, suggesting continued expansion, the fact that it hasn’t bounced at all after the sluggish growth in Q1 suggests that Q2 isn’t likely to be any better. That may dissuade the Bank of England from tightening anytime soon, which would be negative for GBP.
By contrast, the US Institute of Supply Management (ISM) manufacturing PMI is expected to rise after two months of declines. That’s despite the fact that it’s already quite high. This would show that activity is picking up and be considered a good sign for Q2, which is bullish for the dollar.
The prices paid index is forecast to decline slightly, but from such a high level that it doesn’t matter, in my view.
On Saturday, the G7 Finance Ministers and Central Bank Governors meeting breaks up and there will be loads of press conferences. As mentioned above, I expect some choice words about the US tariffs. Canadian Finance Minister Bill Morneau said “we will need to talk about this first and foremost.” “We think it’s absurd that Canada is considered in any way a security risk…” he said. Other ministers agreed. “The decision by the US governmetn to unilaterally implement tariffs is wrong and – from my point of view also illegal,” said German Finance Minister Olaf Scholz.
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Trading recommendations for EUR/USD pair on April 3
From the point of view of a comprehensive analysis, we see the strengthening of the US dollar almost throughout the trading week, and now let’s talk about the details. The sequence of inertia is amazing. We have recorded V-shaped oscillations literally from the beginning of January of this year, where there are already four models in total, the scope of which is stably high. Regarding the current week, we see that the dollar against the euro regains its position despite the logic of the fundamental aspect, but in terms of technical analysis, just V-shaped models. The restoration of more than half relative to early inertia is the basis of the existing formation.
Considering the graphic model “Head and shoulders” [H1 graph], which was discussed in the review of April 1, we see that its execution has almost reached its end, which means that theories of local oscillations work.
Let me remind you that back in that week, we decided on the tactics of working on local movements, contrary to all trends, referring to the fact that the market is highly susceptible to the external background, and the panic on it forms movements of considerable proportions. This time we received confirmation of this tactic again, where the upward inertia of the past week, which, at first glance, was stable, also quickly changed its mood, as it arose on the market.
Regarding volatility, we see steadily high indicators that exceed the daily average. Market acceleration will exceed the two-month mark very soon. But now, we can safely say that the activity is many times higher than last year, and such stable stability in the form of acceleration has not been seen for a very long time. Against this background, speculators have intensified, who take this opportunity to take a solid profit from the market.
Details of volatility: Monday – 155 points; Tuesday – 183 points; Wednesday – 115 points; Thursday – 278 points; Friday – 166 points; Monday – 151 points; Tuesday – 234 points; Wednesday – 243 points; Thursday – 326 points; Friday – 194 points; Monday – 191 points; Tuesday – 160 points; Wednesday – 133 points; Thursday – 188 points; Friday – 194 points; Monday – 134 points; Tuesday – 127 points; Wednesday – 136 points; Thursday – 147 points. The average daily indicator, relative to the dynamics of volatility is 108 points [see table of volatility at the end of the article].
Analyzing the past day, we see that the main round of short positions declined again at the start of the European session and lasted until 18:00 UTC+00. Subsequent oscillations occurred in amplitude motion along the level of 1.0850.
As discussed in the previous review, traders considered the two coordinates of 1.0900 and 1.0970, regarding which they planned to start work.
The recommendation from Thursday regarding fixing prices lower than 1.0900 coincided, having a profit at the first forecasted value.
[We consider selling positions if prices are fixed lower than 1.0900, with the prospect of a movement to 1.0850 -1.0775.]
Considering the trading chart in general terms [the daily period], we see the very inertial fluctuations in the structures of V-shaped models, which we wrote about at the beginning of the article.
The news background of the past day contained data on producer prices in Europe, the pace of which, for the seventh month in a row, has been slowing down. This factor can play a further role in lowering inflation in the EU and, as a fact, put further pressure on the ECB, which will be forced to lower the refinancing rate. In the afternoon, market participants again faced a shock in terms of the labor market in the United States, where the number of applications for unemployment benefits repeated the story of the past week in the form of a multiple increase. So, the number of initial applications was 6,648,000, and repeated 3,029,000, and this is one of the most significant strikes since the Great Depression.
The reaction of the market to such strong statistics was across the entire logic of fundamental analysis, the US dollar continued to strengthen. What is the reason for this resonance? Experts are inclined to believe that investors are uncertain due to the strong external background, where, in view of the possible consequences of the COVID-17 virus in other countries, staying in dollars is most attractive.
In terms of the general informational background, we see that in accordance with the epidemiological situation and the spread of COVID-19 in the world, more than one million cases of infection have already been recorded, of which fatal 53 166. The initial assessment that there are signs of improvement in Europe has not been confirmed, so how the virus from the epicenter [Italy] pumped to Spain, Germany, France, where the indicators are terrifying and the consequences of the pandemic will keep you waiting. So it turns out that investors who see such significant blows to the US labor market immediately look at other countries where the blows can be even more significant, and thereby choose less risk from the overall risk.
Today, in terms of the economic calendar, we have a key event of the week. A report by the United States Department of Labor, which already expects a recession of all that is, but it may turn out to be worse. From a preliminary estimate, unemployment is expected to increase from 3.5% to 4.0%, and the number of jobs outside agriculture can be reduced by 150 thousand.
From the point of view of the logical meaning of fundamental analysis, the report should put pressure on the US dollar, unless, of course, investors continue to remain in the dollar as a relative “safe haven” due to the general risk.
The upcoming trading week in terms of the economic calendar has a number of statistical indicators that are worth paying attention to, but the main impulse remains the external background, which puts enormous pressure on market participants.
The most interesting events displayed below —>
Tuesday April 7th
USA 14:00 Universal time – The number of open vacancies in the labor market JOLTS (Feb)
Wednesday, April 8
USA 18:00 Universal time – minutes of the meeting of the US Federal Open Market Committee
Thursday, April 9
USA 12:30 Universal time – Applications for unemployment benefits
Friday April 10
USA / EU / Britain – Good Friday
USA 12:30 Universal time – Inflation
Analyzing the current trading chart, we see that the compression of quotes during the Pacific and Asian trading sessions led to a splash of short positions, just at the start of the Europeans, which as a result, updated the lows of the week. In fact, we received confirmation once again that investors retain their dollar positions, but do not forget that our trading strategy should be built in terms of local positions, since now it is most attractive in the form of income. Thus, it is worth considering both positions at once now, the first one proceeds from the fact that the report of the United States Department of Labor will be even worse, where it is worth looking at the current fluctuation within a given time interval and trying to fly into a local upward move. While there is no report, we have a support level in the form of a value of 1.0775, where it makes sense to take a pause if we do not have positions.
In terms of the emotional background, we see an initial panic, where market participants are very much exposed to the external background, and, as we see in practice, even logical fundamental indicators react in the market in a completely different way.
Based on the above information, we derive trading recommendations:
– We consider buying positions in two versions, the first technical, that is, a rebound from the level of 1.0775, the entrance is higher than 1.0815, with the prospect of a move to 1.0850. The second method is already considered closer to the publication of the report of the United States Department of Labor, analyzing the slowdown for shorter periods.
– We consider selling positions already in the field of price fixing lower than 1.0775, with the prospect of a move to 1.0700-1.0650.
Analyzing a different sector of time frames (TF), we see that the indicators of technical instruments took the downward side relative to all the main periods due to the downward movement from the beginning of the trading week.
Volatility per week / Measurement of volatility: Month; Quarter; Year
Measurement of volatility reflects the average daily fluctuation calculated from Month / Quarter / Year.
(April 3 was built taking into account the time of publication of the article)
The volatility of the current time is 77 points, which is still considered a small indicator, but activity awaits us ahead. It can be assumed that the external background and the report of the United States Department of Labor will be an incentive to further accelerate volatility.
Resistance zones: 1.0850 **; 1.1000 ***; 1.1080 **; 1,1180; 1.1300; 1.1440; 1.1550; 1.1650 *; 1.1720 **; 1.1850 **; 1,2100
Support Areas: 1.0775 *; 1.0650 (1.0636); 1.0500 ***; 1.0350 **; 1.0000 ***.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
How Examining Higher Time Compressions can Benefit Your Trading and The Post-Labor Day Outlook of the EUR/USD
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EURUSD Forex Chart
We could see how the price rose after the breaking Triangle. It is in the next Triangle at the time and if it will cross the higher border we can open Buy to 1.09699. Potential profit will be 3 times bigger than the risk. Push like if you think this is a useful idea! Before to trade my ideas make your own analysis. Write your comments and questions here! Thanks.
Please support this idea with LIKE if you find it useful. Price is inside of the Symmetrical Triangle. Overall we have a downtrend and the price is more likely to be rejected by Resistance Trenline, also Ichi Cloud resistance zone. In case we have a confirmed rejecteion we can initiate a short position. Also if there is a confirmed breakout of the Symmetrical.
Following yesterday post, long bias remain intake as long as price traded above 1.0800 region. Link to my yesterday ideas attach below. _________________________________________________________________________________________________________________________________________ Traders! if you like my ideas and do take the same trade, please write it in comment so we.
The price has broken a strong resistance line and is now moving up. I think the movement will continue to the resistance level of 1.114.
Friends, please support my free works by clicking LIKE button. Reasons: – Price trades Between two levels, Support and Resistance – Support Level 1.0830 $ – Resistance Level 1.0890 $ – Short of price will break support level and long if price will break resistance level – To open position only after setup which you trade – Always do your own research before.
Please support this idea with LIKE if you find it useful. Price formed a Descending Triangle. In case there is a confirmed breakout of the Horizontal Support zone, it will be a confirmation for the pattern and also the breakout of Ichi Cloud, so we can initiate a short position Thank you for reading this idea! Hope it’s been useful to you and some of us will.
Hi traders! The price of the Euro will fall to its target, after it reaches a key level at around 1.08000, it will RESUME its GROWTH! selling in this case will not be particularly profitable. Good luck to you. If you liked this idea, please like and subscribe to my profile. This idea does not provide the financial advice.
we can see continue upside move as per chart pattern. ThankYou
Friends, please support my free works by clicking LIKE button. Reasons: – Price bounced from Support Level from yesterday idea – Support Level 1.0830 $ – Current resistance Level 1.0930 $ – I think price may continue to grow at least to resistance level – To open position only after setup which you trade – Always do your own research before opening positions and.
Hi, today we are going to talk about EURUSD and its current landscape. We can observe at this timeframe, a confluence of technical factors, that entail a setup which might drive this asset to a new movement. The details of our analysis are highlighted in the chart above. Want to know more about our trades and ideas? Join the Traders Heaven today. Thank you for.
Hello Traders , Buy now or from bottom of range in case price moves lower , we would like to stay long on eurusd till price is not making new lows. In these articles we post intraday possible outcomes of pairs based on naked trading setup only .. We do not take into account fundamental news which may move pair significantly in any direction , follow your.
Please Support this Idea with LIKE if it is Useful. EURUSD The price is above the trendline and is above support/resistance level,if price continue to hold the support then price could continue moving up.. For Entry: Wait for the formation of Bullish Candlestick Pattern to close on 1hr timeframe for confirmation to BUY.. Trade it with proper Sl.. In case,If.
I am expecting ABC wave in EURUSD. In ABC pattern wave C is equal to the size of wave A. Wave B mostly retrace back from 0.618 Fibonacci level. Hit the like button if you find it helpful and informative and follow to catch the waves correctly. PREVIOUS.
price closing in 1 hour above 1.087 is a good long zone. with stop loss below : 0.20% join my telegram channel : t.me twitter : twitter.com
EURUSD Compounding our long
Under that heading we publish signals of the indicator called “Ranger”. It was developed by our experts for intraday trading purposes. This indicator is based on statistical analysis of the data and provides information about possible maximum/minimum values of the day (just right after the day has started) with certain probabilities. What does this information.
we are seeing a potential buy long term towards resistance zone
Hello Traders Here is my view on EURUSD.
EUR USD (Euro / US Dollar)
The most traded currency pairs in the world are called “the Majors” and the EURUSD leads this group as the most traded pair in the world. This pair represents the world two largest economies and has faced most volatility since the inception of the euro in 1999.
Weekly global economic update April 2020
What’s happening this week in economics? Deloitte’s team of economists examines news and trends from around the world.
Week of April 6, 2020
The latest on COVID-19
The number of people in the world who have been infected by the COVID-19 virus has passed one million, with nearly a quarter of them in the United States. This number will most likely rise further in the weeks ahead. The good news is that the number of reported cases in China has been flat for some time now. This likely reflects the success of the policy of suppressing economic activity, which is now starting to recover. In Western Europe, there is evidence that the curve is also flattening. In Italy, for example, which has seen the worst outbreak in Europe, the number of new cases has been declining, having peaked on March 21. In Spain, there has been a perceptible flattening of the curve as well. In Germany, despite a large number of infections, the number of deaths has been relatively low. In both Spain and Italy, where the governments have imposed some of the most restrictive stay-at-home rules, there are reports of a backlash against government regulation. This suggests that there might be a limit to how long people are willing to accept such restrictions in a democratic society. However, it appears evident that the restrictions are working. If the outbreak peaks later this month, economic restrictions might start to be eased sometime in May. There could be a modest economic recovery in the summer.
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In the United States, however, the curve has not yet flattened and the numbers continue to grow rapidly as of this writing. The US outbreak accelerated a few weeks later than that of Europe. The number of states that have restricted activity has suddenly increased. Now that stay-at-home orders cover more than 90 percent of the population, it is possible to imagine that this could end sometime in the next two months. One important question is how long many businesses can endure absent revenue. In some industries, such as hotels and restaurants, revenue has fallen sharply. A large amount of loans and subsidies will not necessarily offset this sufficiently to allow companies to remain in business for very long.
Evidence from 1918 about social distancing
Amid debate about how soon to ease restrictions on economic activity, a new study conducted by the Federal Reserve Bank of New York looks at the experience from the pandemic of 1918–20, often known as the Spanish Influenza. The study finds that the pandemic had a negative economic impact. However, so-called nonpharmaceutical interventions (NPIs), such as closing schools and businesses and ordering people to stay home, ultimately had a positive economic impact during the pandemic a century ago. Specifically, the study reported that “areas that were more severely affected by the 1918 Flu Pandemic saw a sharp and persistent decline in real economic activity. Second, we find that cities that implemented early and extensive NPIs suffered no adverse economic effects over the medium term. On the contrary, cities that intervened earlier and more aggressively experienced a relative increase in real economic activity after the pandemic subsided.” Thus, the study suggests that there is not a tradeoff between suppressing the virus and economic activity. Instead, the act of suppressing the virus ultimately leads to improved economic activity. That is because early efforts to suppress the virus prevent the negative economic impact that stems from a massive outbreak. In a massive outbreak, there is a far greater disruption of both supply and demand in the economy. Moreover, resources are shifted from productive enterprises to caring for the large number of sick.
The Federal Reserve analysis is consistent with what we’ve seen recently in China. There, strict NPIs were implemented relatively early, resulting in a quick suppression of the outbreak. Now, only a month after the worst of the outbreak, economic activity is starting to revive in China. This offers a model for what is likely to happen in Europe and what could happen in the United States, depending on the degree to which such policies are implemented. In the United States, with a fragmented political system, there have been significant NPIs in some states, but not in others. This creates a risk of a severe outbreak in certain parts of the country. In any event, the study found that, in the second wave of the 1918–20 pandemic, which largely happened in the western part of the United States, cities and states were better prepared and undertook NPI policies early, thereby mitigating the outbreak as well as the economic ramifications.
PMIs indicate where and by how much economic activity is declining
Early last week, IHS Markit released the purchasing managers’ indices (PMIs) for manufacturing in multiple countries. PMIs are forward-looking indicators meant to signal the direction of economic activity. They are based on subindices such as output, new orders, employment, pricing, pipelines, and sentiment. A reading above 50 indicates growing activity; the higher the number the faster the growth—and vice versa. The performance of the global manufacturing industry surprisingly improved in March, mainly due to a revival of activity in China and Taiwan. Elsewhere in the world, activity declined, although not to a catastrophic degree. Rather, in many locations, activity declined at rates last seen during the global financial crisis in 2008-09. The global manufacturing PMI published by Markit actually improved slightly, rising from 47.1 in February to 47.6 in March. Both numbers were below 50, indicating a significant decline in activity. The decline in February was due to a major disruption of Chinese manufacturing during the worst time of the virus outbreak. The decline in March was largely due to the economic shutdown now under way in Europe and North America.
Late last week, Markit released the PMIs for the broad services industry in multiple countries and the results provide an early sign of the extent of the European and North American downturn in March. The services sector is defined as most nonconstruction and nonmanufacturing economic activities including finance, telecoms, transportation and distribution, retailing and wholesaling, professional and business services, utilities, health care, and education.
The global services PMI fell sharply from 47.1 in February to 37.0 in March. The PMI for consumer-related services fell much more than the PMIs for business services or financial services. That reflects the shutdown of many consumer-facing industries across Europe and North America including restaurants, hotels, retail stores, and entertainment venues. The sharp decline is disproportionately due to weakness in Europe followed by the United States and Japan. The PMIs in Europe fell to a record low. In China, however, the PMI bounced back, but remained well below 50. Here are the details:
The services PMI for the United States fell sharply, more so than the manufacturing PMI. This reflected the damage in consumer-facing industries as well as business travel. It is likely that the numbers will be worse in April given that many states only recently imposed stay-at-home orders. The services PMI for Brazil also fell sharply, even though Brazil has not imposed significant restrictions on activity.
In Europe, services PMIs are all down sharply. In the United Kingdom, the PMI fell to a record low as consumers and businesses refrained from activity. In the eurozone, the decline was even worse, reflecting the fact that government-imposed restrictions have been in place for longer and have been especially severe in some locations. The PMI for Italy was the lowest of any country at 17.4. This indicated a catastrophic decline in services activity. As Markit commented, “the especially steep decline in Italy’s service sector PMI to just 17.4 likely gives a taste of things to come for other countries as closures and lockdowns become more prevalent and more strictly enforced in coming months.” Spain, too, had a severe decline, in line with its strict restrictions. A less severe but nonetheless huge decline took place in Germany.
In Asia, the PMI for China bounced back after having nearly collapsed in February. It has risen from 26.5 in February to 43.0 in March. This means that activity in the services industry continued to decline in March, but at a much slower pace. In Hong Kong, the PMI stabilized at a very low level. In Japan, evidence of a worsening outbreak led the government to impose new controls late in March. The PMI fell sharply. The same was true in Singapore as well as Australia. The numbers are below.
High frequency data from Europe shows the severity of the crisis
Michael Wolf, a global economist with Deloitte, looks at high frequency data in Europe to understand the impact of the virus outbreak:
As we discussed in a previous note regarding the United States, high frequency data has become increasingly important to better understand the magnitude and inflection points of the current downturn. Similar to the United States, European high frequency data points to a large collapse in economic activity. Retail foot traffic in the UK was down 81.1 percent from a year earlier, while numbers for Italy were slightly worse. Job postings fell by about a third in the United Kingdom and more than a quarter in Italy. In France, postings were down a little more than 20 percent, with the Netherlands close behind. In Germany, the decline was 13.5 percent. Although such declines would be huge under normal circumstances, they may mask the true extent of pain in labor markets as employers leave job postings open despite hiring freezes.
The data also reflects the timing or magnitude of social distancing policies each country put in place. For example, box office sales in most European countries are near zero now, but Italy’s box office neared zero by the weekend of March 7, while Spain followed one week later and the United Kingdom and Germany another week after that. This generally follows the timing for each government social distancing response to its own virus outbreak.
Similarly, electricity consumption between the first and last full weeks in March fell furthest in Italy, which is down 27 percent. Electricity demand in the UK and Spain was down 15 percent and 13 percent respectively, while German electricity consumption fell just 7 percent over the same period. Electricity consumption in France was down 23 percent. However, French electricity demand is more susceptible to changes in the weather making cross-country comparisons less reliable.
Although it is difficult to say for certain how much France’s electricity consumption decline is due to the coronavirus versus weather effects, French policies to prevent further contagion are looking particularly severe, especially when compared to Germany. For example, peak street congestion in Paris was down 90 percent during the last two days in March relative to 2020. That is even higher than the 84 percent decline in Milan. Rome, Madrid, Barcelona, and London have all seen at least 80 percent declines in street congestion over the same period. But in Berlin and Munich, street congestion was down just 58 percent and 68 percent, respectively. Similarly, public transit usage in Paris was down 86 percent March 31, just shy of the declines seen in Rome, Milan, and Madrid. However, in Berlin, usage was down a more moderate 73 percent.
Canada faces more than one headwind
Craig Alexander, chief economist of Deloitte Canada, provides some insights on the latest developments in Canada:
This week, Canadian indicators showed that the economy had little forward momentum before the pandemic went global and infected Canada. The Canadian economy grew by only 0.1 percent in January, and this follows anemic 0.3 percent annualized growth in the fourth quarter of last year. We expect February 2020 will post a small decline, followed by a plunge in real GDP expected in March as a result of the unfolding COVID-19 pandemic. As a result, we forecast a 5 percent annualized contraction in the first quarter of 2020, followed by a greater than 20 percent contraction in the second quarter of 2020.
This contraction can be seen in many ways. Canadian vehicle sales fell by 47 percent in March from their level in February. However, this covers a period before the economic lockdown came into full effect, meaning a further drop will likely occur in April.
A new survey by Restaurant Canada reports that 800,000 food industry workers have lost their jobs since the beginning of March. Seven out of 10 foodservice operators will further cut back on staff hours or lay off more employees if conditions do not improve. Nearly one out of 10 restaurants have already closed permanently and another 18 percent will permanently close within a month if current conditions continue.
The IHS Markit Canada Manufacturing Purchasing Manager’s Index fell to 46.1 in March from 51.8 February. This was a smaller-than-expected decline, but it does signal that the manufacturing sector is contracting.
The Federal government announced that the 75 percent wage subsidy announced last week for small business would apply to all businesses, regardless of size and includes for-profit, nonprofit, and charity organizations that experienced a decline in revenues of 30 percent or more. The aim is to keep workers on payrolls. Wages are the biggest expense that firms have. So, providing the 75 percent wage subsidy to all employers of any size is designed to address some of the balance sheet shock to firms.
Lastly, it is important to stress that the Canadian economy is not only feeling the shock from the pandemic but is also experiencing an oil shock. Lower oil prices hurt Canadian provinces that have large energy sectors, such as Alberta, Newfoundland and Labrador, and Saskatchewan. There are two benchmark prices for Canadian oil producers. Some sell at West Texas Intermediate (WTI) crude oil, while others sell at Western Canada Select prices. WTI started the year at close to US$60 a barrel. In the final days of March, WTI fell to near US$20 a barrel. Worse still, WCS dropped to around US$5 during the middle of this week. But there was some relief at the end of the week, as oil prices rallied by close to US$5 in anticipation of a possible OPEC supply cut announcement next week. Regardless of the fluctuations, the Canadian energy sector is being impacted by the low energy price environment.
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