Market Commentary & Outlook for EU, U.S and Asia.

US data continued to disappoint, with the economic fallout from the COVID-19 clearly on display this week. Data included a widening U.S. trade deficit in March, plunging vehicle sales in April (-24.5% m/m) and the service sector falling into contractionary territory. 

US economy lost a massive 20.5 million jobs last month, while the unemployment rate hit the roof to 14.7%, as coronavirus led many businesses to close and lay off staff. Economists had been expecting payrolls to shed 21.5 million and the unemployment rate to go to 16%. April’s unemployment rate topped the post-war record 10.8%. As expected, the biggest hit was to the leisure and hospitality industry, which lost 7.7 million workers. Education and health services lost 2.5 million, while professional and business services as well as retail both saw 2.1 million workers lose their jobs. 

Jobless claims last week totalled 3.17 million, taking the seven-week running total to 33.5 million. On a positive note, the numbers remain elevated, it is the lowest total since shortly after the coronavirus was declared a pandemic. Additionally, some states have already eased restrictions, and more are set to follow. As more regional economies reopen the pressures should ease further. 

For the week ahead, the key drivers will be the retail sales, industrial production, and the CPI. After tumbling by an upwardly revised but still shocking 8.4% m/m in March, retail sales are forecast to set a new record, falling by a massive 10% in April. The slump in industrial activity is also anticipated to have accelerated, with production shrinking by 11.6% m/m. CPI is expected to fall to a near 4-year low of 0.8% y/y in April, dragged down by a plunge in gasoline prices. Core prices are also expected to fall (-0.2% m/m). 

In Europe, the German Constitutional Court ruled that “some parts” of ECB’s huge bond-buying program were unconstitutional. It ordered the German government to safeguard that the ECB carried out a “proportionality assessment” of its asset purchasing program and that the “economic and fiscal policy effects” did not exceed other policy objectives. The court said it would avert Germany’s central bank from making further purchases if the ECB failed to comply within three months. The ECB declared that the EU court alone has the power to rule over matters such as the constitutionality of the purchase program. In UK, the economy is forecast to have contracted by 2% q/q, with March output alone predicted to have plummeted by 7%. Industrial output figures for March are expected to be equally bad. 

In China, monthly indicators on industrial output, retail sales and urban investment are due on Friday. April’s activity data will likely show the economy continued to improve, but with the post-lockdown recovery held back by the global collapse. Industrial production may have swung back into expansion, while declines in investment and retail sales may have narrowed. 

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