This Week's State Of The Economy - What Is Ahead? - 22 May 2020

By: Taro Chellaram /Wells Fargo Economics & Financial Report/May 25, 2020

This Week's State Of The Economy - What Is Ahead? - 22 May 2020

U.S. - Wait and See

  • The re-opening of the country is getting underway, with all 50 states starting to roll back restrictions.
  • It remains too early to assess the effect of the re-opening on corona virus case growth, which continues to slow in a fairly broad-based manner, despite an impressive—albeit late-in-the-game—ramp-up in testing.
  • Nearly 2.5 million Americans filed initial unemployment claims the week ended May 16, bringing the cumulative total over the past nine weeks to more than 38 million.

 

Global - U.S.-China Tensions Building; EM Central Banks Easing

  • Along with the intensification of COVID-19, U.S.-China relations have started to intensify again as well. Heightened rhetoric from the U.S. administration has recently turned to action, and while we are not yet ready to build any material escalations or additional tariffs into our forecasts, we acknowledge U.S.-China trade tensions could be deteriorating.
  • Multiple central banks in emerging markets met this week to assess monetary policy with rate cuts occurring across Asia and EMEA. With inflation on a downward trajectory, additional monetary policy space to cut rates has been created and as of now, we believe EM central banks will continue to ease policy.



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Two countervailing themes competed for attention this week in financial markets. The first is that for the most part, economic data continue to surprise to the upside and do not yet rule out prospects for that elusive V-shaped recovery.

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The CDC\'s relaxation of its mask mandate occurred mid-May, and as data for that month begins rolling in this week, it is evident there is no lack of demand. Supplies, on the other hand, are a worsening problem.

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U.S. GDP declined at an annualized rate of 4.8% in the first quarter, only a hint of what is to come in the second quarter.

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The Federal Reserve greatly expanded the collateral that it is willing to buy, further easing pressures in financial markets.

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Survey evidence flashed signs of contraction in the manufacturing sector and indicated weakness spreading to the services side of the economy, while employers added a less-than-expected 136K jobs in September.

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The FOMC meeting minutes acknowledged the economy\'s resilience and continued to stress the Committee\'s resolve to bring inflation back down toward its 2% goal.

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September 2020 Economy At A Glance

A March survey by the Federal Reserve Bank of Dallas found most exploration firms need West Texas Inter-mediate (WTI) at $49 per barrel or higher to profitably drill a well.


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