• MTS Economic News 20200605

    5 Jun 2020 | Economic News


· Euro jumps as ECB increases stimulus

The euro jumped to a 12-week high against the U.S. dollar on Thursday after the European Central Bank increased stimulus to shore up economies hurt by the coronavirus pandemic.

The ECB increased the size of its Pandemic Emergency Purchase Program (PEPP) to 1.35 trillion euros ($1.52 trillion) from 750 billion euros, more than the 500 billion-euro increase most analysts had expected, and extended it until June 2021 at the earliest, with a pledge to reinvest proceeds until at least the end of 2022.

“This highlights the ECB’s commitment to strengthening the recovery,” said Jai Malhi, global market strategist at J.P. Morgan Asset Management in London. “The euro zone may well emerge from the COVID-19 recession more quickly than the U.S. and UK.

The single currency EUR= was last up 0.21% on the day at $1.1256, after earlier reaching $1.1273, the highest since March 12. It has gained for eight consecutive sessions.

The dollar index =USD, which measures the greenback against a basket of major currencies, fell 0.18% on the day to 97.144.

The dollar has declined for the past two weeks as risk sentiment improves and stocks surge on optimism that the worst of the economic downturn from the coronavirus has passed.

A stocks rally appeared to run out of steam on Thursday, however, with Wall Street opening lower.

U.S. data showed that the number of Americans filing for unemployment benefits dropped below 2 million last week for the first time since mid-March, but remains astonishingly high as companies adjust to an environment that has been significantly changed by COVID-19.

The dollar fell 0.15% against the safe-haven Japanese yen JPY= to 108.72 yen, after earlier gaining to 109.16, the highest since April 7.

· Europe's 'stimulus fireworks': ECB and Germany throw new wall of money at the economy

Europe is throwing money at the region's deepest downturn since the Great Depression. It still may not be enough to spur a strong recovery in the second half of the year.

The European Central Bank on Thursday said it would expand its massive bond-buying program to combat the shock from the coronavirus pandemic. The central bank has now committed to buy €1.35 trillion ($1.5 trillion) of bonds, an increase of €600 billion ($675 billion).

The announcement comes after Germany's government approved a €130 billion ($146 billion) stimulus package to kickstart the recovery in Europe's biggest economy, offering new tax breaks and incentives for electric car purchases.

"The combination of the fiscal policy and the monetary policy ... that hopefully will be critically important to restore economic conditions," ECB President Christine Lagarde said at a press conference.

Investors welcomed both moves, with the euro trading up 0.6% against the US dollar. But economists warned that while such policy steps are necessary, they can only do some much at an uncertain juncture.

· European Central Bank takes its pandemic bond buying to 1.35 trillion euros to try to prop up economy

The European Central Bank announced Thursday it will increase its Pandemic Emergency Purchase Programme by 600 billion euros ($672 billion) as it attempts to bolster the economy following the coronavirus crisis.

The amount comes on top of 750 billion euros of government bond purchases the ECB announced in March, taking the total to 1.35 trillion euros. The central bank also said Thursday that the duration of the program will be extended from the end of 2020 until June 2021, or until the bank believes the crisis is over.

However, some analysts have raised doubts that the 600 billion euro increase will be enough to cover purchases until June of 2021. In a press conference following the move, ECB President Christine Lagarde said this was deemed to be “the appropriate size” to bring inflation “significantly closer” to its pre-coronavirus path.

Market Reaction

The emergency program, announced in March, has helped keep borrowing costs lower for countries in the euro zone — the 19-member region that uses the euro as its common currency.

Thursday’s announcement contributed to a further reduction in borrowing costs, with the yield on Italy’s 10-year government paper dropping from session highs above 1.56% to 1.40% shortly after the decision. There have been similar moves on Greek, Portuguese and Spanish debt.

The euro see-sawed, initially turning positive on the news to trade about 0.25% higher against the U.S. dollar. It then dropped after disappointing macroeconomic projections, to rebound again moments later.

The central bank updated its economic forecasts and said it now expected the euro zone economy to contract by 8.7% this year, before rebounding to 5.2% growth in 2021 and 3.3% in 2022.

The projections are significantly worse than the ECB’s own forecasts in March, when it forecast GDP for 2020 at 0.8%, for instance.

The central bank also said headline inflation was expected to be 0.3% in 2020 and 0.8% in 2021 — well below the bank’s mandate to drive inflation “close but below 2%”.

Lagarde explained that the forecasts were dependent on the duration of the pandemic and the effectiveness of policies taken across the region.

The unemployment rate in the euro zone rose to 7.3% in April, from 7.1% in March, as lockdown restrictions hit jobs.

The ECB had previously warned that the euro area economy could contract as much as 15% in its worst-case scenario due to the coronavirus crisis.

· German government advisers cut 2020 economic forecast: Funke media

The German government’s panel of advisers expects Europe’s biggest economy to contract by 6-7% this year due to the coronavirus, a more pessimistic assessment than the group made in March, the group’s head told the Funke media group on Friday.

“The lockdown has taken longer and foreign trade is being hit harder than expected. We were clearly too optimistic, especially with regard to the United States,” the panel’s head, Lars Feld, told the Funke media group.

· Another 1.877 million Americans file for unemployment

Another 1.877 million Americans filed initial jobless claims last week, according to data released from the Department of Labor, as coronavirus shutdowns continue to hamstring employment.

Continuing claims, or those who have filed for unemployment for at least two weeks, totaled 21.5 million, a tick higher than the previous period. Last week’s report from the Labor Department showed continuing claims decline for the first time since the economy shuttered.

· Unemployment expected to surge to 20% as million more out of work

The May employment report is expected to show that 8.3 million more jobs were lost, and the unemployment rate rose to 20%.

Economists say job losses have now likely peaked but the pain is not over since many jobs will not be quickly recovered. Bank of America expects the June employment report to show job gains, with more improvement through the summer, but the unemployment rate will still be about 13% by September. According to Dow Jones, unemployment is expected to rise to 19.5%, up from 14.7% in April. In April, there were 20.5 million jobs lost.

· Majority of Americans expect a second wave, poll finds

More than two-thirds, or 69%, of surveyed Americans believe there will be a second wave of the coronavirus, according to a new poll from Monmouth University.

As multiple states prepare to reopen businesses and loosen shelter-in-place guidelines, 57% of people surveyed said they believe the federal government is not doing enough to help hard-hit states deal with the outbreak.

The survey also indicates that respondents believe reopening decisions should be based more on health concerns rather than economic needs. More than half, or 54%, of respondents said it’s important to make sure that fewer people contract the virus, while 36% said it’s more important to prevent an economic downturn.

The poll, conducted between May 28 and June 1, surveyed 807 adults in the United States, with a margin of error of 3.5 percentage points.

· UK retail sales dive 18% in May as lockdown bites: BDO

British retailers saw sales plunge by nearly a fifth in May as the government’s coronavirus lockdown measures kept shopping streets empty, a survey showed on Friday.

Accountancy and business advisory firm BDO said its monthly High Street Sales Tracker (HSST) found total like-for-like sales, consisting of both in-store and non-store (online) sales, declined by 18.3% in May - the second worst result on record after April’s 29.6% decline.

BDO highlighted a 22.6% fall in fashion sales.

· UK consumer confidence touches new decade low as COVID hits economy: GfK

British consumer confidence in late May fell to its lowest level since the global financial crisis over a decade ago as people worried about a rise in unemployment and falling house prices caused by the coronavirus crisis, a survey showed on Friday.

GfK, a polling firm, said its consumer confidence index slipped to -36 in second half of the month from -34 in the first two weeks, its lowest since January 2009 and not far off a series low of -39 touched in July2008.

· Portugal economy to contract 6.9% this year, prime minister says

Portugal’s economy will contract 6.9% this year and unemployment is likely to soar to 9.6% due to the impact of the coronavirus pandemic, Prime Minister Antonio Costa said on Thursday.

The country had seen some of its strongest growth streaks in the past few years after leaving behind the 2010-13 economic and debt crisis, and the recession predicted by the government is still slightly less steep than the 7.7% decline for all of the euro zone forecasted by the European Commission last month.

· Oil rises slightly as traders await clarity on output cuts

Oil prices were little changed on Thursday as investors awaited a decision from top crude producers on whether to extend record output cuts.

The Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, a group known as OPEC+, are debating when to hold ministerial talks to discuss a possible extension of the existing cuts.

Brent crude futures were up 6 cents, or 0.2%, at $39.85 a barrel. West Texas Intermediate crude futures gained 12 cents to settle at $37.41 per barrel.

Saudi Arabia and Russia, two of the world’s biggest oil producers, want to extend cuts of 9.7 million barrels per day (bpd) that major producers agreed to in April. But a suggestion by OPEC president Algeria to meet on Thursday was delayed amid talks about poor compliance by some producers.

Saudi Arabia, Kuwait and the United Arab Emirates are not planning to extend voluntary additional output cuts of 1.18 million bpd after June, indicating that crude supply could rise next month regardless of any OPEC+ decision.


Reference: Reuters, CNBC, CNN

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