The global response to the COVID-19 pandemic continued to evolve in a “schizophrenic” fashion this week, with jurisdictions around the world reopening components of their economies – some cautiously, some with abandon – while economic data and some leading policymakers sent grim signals of a significant recession, or perhaps worse, stemming from the pandemic and the associated lockdowns.
The state of Wisconsin exemplified the all-in approach to reopening as bars and restaurants filled up rapidly Wednesday night after the state’s Supreme Court overturned a coronavirus stay-at-home order issued by the states Democratic governor. A more cautious approach prevailed in Canada, where Ontario allowed golf courses and provincial campgrounds to open this weekend, but kept bars and restaurants locked down – except for takeout or delivery – while the province of Quebec was forced to delay the reopening of Montreal in light of its high COVID-19 numbers even as restrictions in rural areas were eased.
Economic data continued to paint a portrait of a devastated economy in the US and elsewhere in the world. On Friday, the US Census Bureau reported that retail sales were down $403.9 billion in April, a record decrease of 16.4% from the previous month. On Tuesday, the US Bureau of Labor Statistics reported that consumer prices excluding food and energy recorded a 0.4% decline – the largest monthly decline since records began in 1957.
US Federal Reserve Chair Jerome Powell warned on Wednesday that the “path ahead is both highly uncertain and subject to significant downside risk.” He noted that the fiscal response from Washington has been both “timely and appropriately large,” but he also suggested a would be warranted if “it helps avoid long-term economic damage and leaves us with a stronger recovery”.
US equity markets retreated somewhat during the week as the oscillation between risk appetite and risk aversion tended toward the latter, and the safe-haven US dollar appreciated about 0.5% over the course of the week.
On Thursday, US President Donald Trump said now is a “great time” to have a strong U.S. dollar, in a notable departure from his advocacy of a weaker greenback in the past.
Perhaps more consequentially, Trump said he has no interest in speaking to President Xi Jinping of China right now and suggested he could even cut ties with the world’s second largest economy. It was symptomatic of a deteriorating relationship between the two economic superpowers which could have profound consequences for trade and the global economy.
The question of the impact of the pandemic-driven economic shutdown on consumer prices could be top of mind for global markets next week as inflation data for the UK, the eurozone, Canada and Japan are all released. Other potentially impactful events on the economic calendar include Canadian retail sales data for March on Friday and the minutes of the US Federal Reserve’s most recent policy-setting meetings on Wednesday, as well as speaking engagements by Fed Chair Powell and other policy makers at the US central bank at various points in the week.
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Suggested Reading | Cambridge Market Analysis
■ US Consumer Sentiment Recovers in May read article
■ Drop in US Retail Sales Shatters Records read article
■ Weekly US Jobless Claims Data Score Double Hat Trick read article
■ Fed Chair Powell Says Crisis “Without Modern Precedent”, Quashes Negative-Rate Bets read article
■ US April Core CPI Suffers Biggest Monthly Slump Since At Least 1957 read article
Suggested Reading | Counterparties
■ LSE Business Review: Nine policy taboos overturned by Covid-19 read article
■ Bank of Canada: Financial System Review – 2020 read article
■ Project Syndicate: Making the Best of a Post-Pandemic World read article
■ Financial Times: Can Canada’s property market repeat the success of 2008? read article
■ US Federal Reserve Chair Jerome Powell: Current Economic Issues read article
■ BIS: Green Swan 2 – Climate change and Covid-19: reflections on efficiency versus resilience read article
■ Bloomberg: Trudeau’s Central Bank Choice Hits Nerve Among Women in Finance read article
■ Reuters: ‘This virus may never go away,’ WHO says read article
■ MarketWatch Opinion: In a replay of 2008, high-risk subprime loans could worsen this financial crisis read article
■ WSJ: Economic Shock of Virus Hit Lower-Income Households Harder, Fed Finds read article
Calendar for the Week Ahead
Monday, May 18 ■ GBP – February to April Employment Change
■ CAD – Victoria Day holiday
Tuesday, May 19 ■ EUR – ZEW Economic Sentiment Index
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