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Johnson returns to work

Priorities

If there was no astonishment at the end of last week that the provisional purchasing managers’ index measures for April were bad, there was at least some surprise at quite how awful they were. It would be invidious to point the finger at any particular country but let’s do so anyway for example: the French services sector scored 10.4.

That is 10.4 on a scale of 0-100 where 50 represents stagnation and zero means obliteration. Two months ago the February reading was 52.5. Markit, the originator of the PMI statistics, observed that activity “continued to plunge”, with “business closures stifling both supply and demand”. The collective readings for Euroland as a whole came in at 11.7 for services and 33.6 for manufacturing with the composite index at 13.5. Britain did just as badly with services at 12.3, manufacturing at 32.9 and the composite at 12.9. All of those numbers were record lows.

There was more plunging from the CBI, with manufacturers reporting “the quickest falls in output volumes and total new orders since 2009”. With GfK’s index of UK consumer confidence there was rather less drama but only because the finalised figure for April was in line with the provisional -34 reported three weeks ago. Friday’s retail sales data for March showed a 5.1% monthly decline, the biggest ever. The only glimmer of hope came from alcohol sales, which were 32.6% higher on the month.

 

A matter of confidence

US consumer confidence as calculated by the University of Michigan came in at 71.8, slightly ahead of the provisional 71.0 reported earlier this month. Ifo’s three measures of German business confidence “plunged” and “crashed” as a result of “catastrophic” sentiment.

Other ecostats on Friday showed Norway’s mainland gross domestic product shrinking by 1.9% in the first quarter as a result of a 6.4% contraction in March alone. US durable goods orders, a volatile and unpredictable statistic at the best of times, fell 14.4% in March after increasing for three consecutive months.

It is impossible to be sure of the connections but the US dollar fell following comments by the president and sterling moved higher after an announcement that the prime minister had returned from his country house on Sunday evening. Trump suggested injecting disinfectant to cure Covid-19, attracting ridicule on all sides. Johnson will be back at work today and investors hope he will provide some leadership on the nature and timing of an end to the lockdown.

 

No-limit QE

After a short policy meeting this morning the Bank of Japan announced that it would expand its stimulus effort. The BoJ will “purchase a necessary amount of Japanese government bonds without setting an upper limit”. America’s Federal Reserve said a similar thing last month.

The announcement suggests that the BoJ has bitten the bullet of monetising government debt, given the imminent need for the country to issue new Japanese Government Bonds (JGBs). The BoJ said at the same time that it has sharply downgraded its forecast for gross domestic product, which it now expects to contract by between 3% and 5% in the current financial year.

Just two sets of data appear on today’s agenda. Canada will report on international investment flows and the Dallas Fed prints its manufacturing index for April, which could be even lower than last month’s -70.

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