Daily Brief

Think of a number, halve it

Understated decline

After the Chinese manufacturing PMIs and one of the Australian measures came in above 50 on Wednesday, the remainder of the numbers from Europe and North America were below breakeven. Several of them exceeded expectations but that simply made them less bleak than expected.

The manufacturing purchasing managers’ indices from Spain, Italy, France and Germany scored between 45.4 and 40.3. Greece lost its place as the top performer and the euro zone as a whole scored a below-forecast 44.5. Paradoxically, difficulty in securing supplies, with “lead times deteriorating to the greatest degree in nearly 23 years” – “masks the severity of the slump in manufacturing”. In other words, things are even worse than they look.

Switzerland put in a 43.7 and Britain’s 47.8 included a record low for optimism. The US measures from ISM and Markit came in at 49.1 and 48.5, both lower on the month by around a point. As the European PMIs came through the euro drifted lower, eventually losing four fifths of a cent to the US dollar and sterling and holding steady against the Swiss franc.


Spreading alarm

The US president has changed his stance markedly in the last few weeks. He has shifted from asserting that the tragic Covid-19 pandemic was “a flu” to stating on Wednesday that Americans need to prepare for a “very painful” few weeks.

His comment provoked a spurt of alarm in financial markets. At a currency level, the Australian dollar spiked lower, dragging the NZ dollar in its wake. Both recovered most of their losses, leaving the Kiwi on average unchanged, a cent lower against sterling, and the Aussie down by a cent and two thirds.

The Aussie’s situation was not improved by the latest NAB Quarterly Business Survey this morning. It showed business conditions and confidence declining sharply in Q1, even though half the responses were collected before the lockdowns began to bite.


Jobs or no jobs

Today and on Friday all eyes will be on the US employment situation. A week ago America reported 3.3 million new unemployment claims and a similar – perhaps even bigger – number is likely today. Friday’s employment report is likely to show a fall in nonfarm payrolls but that is not guaranteed, given the timing of the data inputs.

Intuitively, the loss of six million jobs in fortnight should mean a similarly shocking result for March as a whole. However, only the numbers from the first two weeks of the month are taken into account in Friday’s report, so it possible that the monthly change will be quite modest. That will not be the case in a month’s time with the April figure.

Friday also brings the service sector PMIs. If the manufacturing readings were ugly, the services numbers will be shocking. In Europe the figures are expected to be in the 20s and 30s. One of the US readings could make it into the 40s. But only the most optimistic optimists foresee positive numbers above the 50 breakeven level.

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