Daily Brief

Negative growth begins to bite

Straight-faced dollar

In keeping with the Zeitgeist, Federal Reserve chairman Jerome Powell held a virtual press conference yesterday after the Federal Open Market Committee left monetary policy unchanged. The consensus among the media was that his tone was “sober” and “grim”. Mr Powell’s appearance followed news that the US economy shrank by 1.2% in the first quarter of 2020.

The Bureau of Economic Affairs press release said that gross domestic product decreased at an annual rate of 4.8% in Q1, representing a quarter-on-quarter change of -1.2%. It was slightly worse than the 4% decline predicted by analysts but only a shadow of what is sure to be a much more dramatic decline in Q2.

The Fed’s press release spoke of “tremendous human and economic hardship” and how the crisis “poses considerable risks” over the medium term. Mr Powell did his best to disabuse consumers and markets of any illusion that the situation will return quickly to normal once the lockdown ends. “The chances are that it won’t go right back to where we were”, he said. One commentator interpreted Mr Powell’s words as a warning that interest rates could remain close to zero for five years. The whole US picture did not generate a great deal of enthusiasm for the dollar, which is just about unchanged against sterling, the euro, the franc and the yen.


Even straighter-faced euro

French GDP was the first of the European ecostats out of the traps this morning and it made the US number look doubly good. First, the French economy contracted by 5.8% in Q1: Second, that was a quarter-on-quarter decline, equivalent to an annualised -23.2% contraction.

There will be more preliminary GDP readings from Europe today, including the one for pan-Euroland which is pencilled in at -3.5% QoQ (or -14.0% annualised). Other euro zone data today cover inflation, expected to be close to zero at 0.1%, and unemployment, projected to be up from 7.3% to 7.7% for March.

After lunch the European Central Bank will release its monetary policy statement and President Christine Lagarde will hold a press conference. She is under pressure from EU politicians to plough yet more money into the asset purchase quantitative easing programme, thereby reducing the pressure on them to come up with a jointly-financed fiscal package.



Along the way between Thursday morning and the weekend lies a sprinkling of finalised purchasing managers’ index readings for April. It does not include any European numbers because much of the continent, doubtless with a sense of irony, will be celebrating Labour Day on Friday.

China opened the batting this morning with unexpected dips in the manufacturing PMIs from 52 to 50.8 (CFLP) and from 50.1 to 49.4 (Caixin). AiG’s Performance of Manufacturing index and Markit’s manufacturing PMI tonight will shine a light on the situation in Australia. The UK reading is forecast to be close to the provisional 32.9 reported last week and the two US figures are expected to be close to 37.

The inflation figures for Tokyo come out tonight, as do Australian new home sales. At some point Nationwide will reveal how the tragic Covid-19 pandemic affected the UK housing market in April.  

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