This Week's State Of The Economy - What Is Ahead? - 05 June 2020

By: Taro Chellaram /Wells Fargo Economics & Financial Report/Jun 09, 2020

This Week's State Of The Economy - What Is Ahead? - 05 June 2020

U.S. - Was April the Bottom?

  • Data this week continued to suggest the U.S. economy hit rock bottom in April. Still, it is a long road to recovery and the pickup in economic activity will be gradual.
  • In what was a surprising jobs report, the U.S. labor market added 2.5 million jobs in May and the unemployment rate fell to 13.3%. The bottom line: hiring started to pick-up earlier than expected as states began to loosen restrictions in May.
  • Survey evidence from the ISM further supports the notion that economic activity has bottomed, as does mobility data, though they exemplify just how gradual the rebound may be.

 

Global - Trio of Central Bank Meetings Dominate the Week

  • There was a trio of key central bank meetings this week, with the Reserve Bank of Australia (RBA) kicking the week off. As expected, the RBA maintained its main policy rate and target for the three-year sovereign bond yield.
  • The European Central Bank increased the Pandemic Emergency Purchase Program by €600 billion, extended the timeline for purchases to June 2021 and announced maturing holdings would be reinvested until at least the end of 2022.
  • The Bank of Canada left its main policy rate unchanged and modestly scaled back some provisions aimed at providing liquidity in financial markets.



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Home sales also have been slow to respond. Existing home sales inched up during July alongside a modest dip in mortgage rates.

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Retail sales declined 0.4% during February, while industrial production was flat (0.0%). Housing starts and permits jumped 9.8% and 13.8%, respectively.

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Nonfarm payrolls expanded 303K in March, surpassing all estimates submitted to Bloomberg. The continued strength in hiring suggests less urgency for policymakers at the Federal Reserve to lower the target range of the fed funds rate.

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Fears of an escalating coronavirus outbreak reached the United States this week, as a Washington state man became the first confirmed domestic case and the international total reached more than 800.

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Vaccines are here, but they are not yet widely available in a way that can stem the spread of a disease that grows by 200K a day.

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U.S. Economy expands but at a weak rate. Regional bank failures cause corporate investment spreads to widen again. House Republicans pass bills that affect the debt ceiling.

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Oil prices went negative for the first time in history on Monday as the evaporation of demand collided with a supply glut. In the past five weeks, 26.5 million people have filed for unemployment insurance, or more than one out of every seven workers.

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In other economic news, output continues to ramp up across the U.S., even as the resurgence in COVID cases is leading to some pullback in consumer engagement.

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In what was a jam-packed week of economic data, the jobs report, prospects of additional fiscal stimulus and the president’s positive COVID-19 test result commanded markets’ attention.

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