Updated: Apr 15, 2020
Ahead of the Easter weekend its been a quite week in financial markets, with the FTSE 100 and Americas S&P500 indices regaining some ground over the course of the week. Sterling too has edged slightly higher, trading against the dollar at just over $1.24 by Thursday lunchtime. Oil prices broadly held onto the gains made at the end of last week, edging above $34 a barrel on Thursday amid continuing speculation that Saudi Arabia and Russia could soon reach a deal to cut production.
Its also been a relatively quiet week for economic data. Keen data geeks will have noticed that the Ups monthly GDP figures were released this morning (Thursday), but these only cover the period up to february and as such are pretty much redundant in terms of what they tell us about what is going on in the uK economy as the 'lockdown' restrictions continue.
The Government is required by law to review the lockdown arrangement every three weeks, with the first review having to take place by 16 April, i.e. next Thursday. It is universally expected that no relaxation is imminent, not least because the Cabinet will be reluctant to take such a step while the Prime Minister remains in hospital. It seems likely, therefore, that the current lockdown is set to extend into May.
USA - ANOTHER BIG RISE IN UNEMPLOYMENT CLAIMS
As was the case last week, this week's stand out data release was the US weekly jobless claims figure; being a weekly series, it is pretty much the closest thing we have to a realtime indicator for the impact of the corona virus outbreak on overall economic activity in the USA.
The latest figure was another worryingly large one, with 6.6 million new claims for unemployment benefits being made during the week ending 4th April. This is only slightly lower than the previous weeks all time high of 6.9 million claims, both figures easily surpassing the previous record of 695,000 that had stood since 1982 (and they completely dwarf the historic weekly average of around 350,000).
What's striking about the current figures is the magnitude and the speed at which claims have accelerated, a very sharp reversal of the previously - strong labour market (where only a few weeks ago the unemployment rate was at a 50 year low of just 3.5%). Taking the latest two weeks together, the figures indicate that some 12.5 million jobs have been lost in a fortnight - compared to a total of around 9 million that were lost during the 2008 recession. Its possible, moreover, that even these figures may be failing to capture the full extent of job losses if, as reports suggest, many would be claimants have experienced difficulty in submitting claims, due to cope with an unprecedented level of demand.
GLOBAL TRADE TAKES A HIT
The World Trade Organisation (WTO) has issued new forecasts which point to a steep fall in global trade volumes as a consequence of the corona virus outbreak. The WTO reckons that even in a relatively optimistic scenario, where the outbreak becomes contained over the coming weeks and months and trade starts to recover in the second half of this year, the volume of trade in 2020 will be down by 13%, a bigger fall than the drop of about 10% that followed the global recession of 2008/2009.
Those relatively optimistic assumptions assumptions are, needless to say, not guaranteed, and at this stage there is still much uncertainty about how things will unfold. In a more pessimistic scenario, the WTO reckons that trade volumes could fall by over 30%, comparable with the scale of decline during the global slump of the 1930s, though in this case the fall would be in a much shorter period of time. In this scenario, moreover, the steeper decline and delayed recovery would mean that, looking further ahead, by 2022 trade volumes would still be down by more than 10% compared to 2019.
UK COMSUMER CONFIDENCE SLUMPS
The GfK survey has released a special report for the second half of March, which confirms that consumer sentiment has tumbled in the wake of the lockdown restrictions. The previously - reported figure for March, which was based on surveys carried out in the first two weeks of last month, showed a relatively modest decline in the headline index from -7 to -9. The updated 'special' report is based on responses gathered between 16th and 27th March, and shows the biggest one month delicate in confidence since the survey began in 1974. The overall confidence index of -34 is comparable to reading of -39 reached at the nadir of sentiment during the 2008 recession.
STRESSES IN THE EUROZONE
There are glimmers of hope that some European countries are preparing to cautiously ease their lockdown measures. Small shops will open in Austria and the Czech Republic, and schools in Denmark will re-open on 15 April. German health minister Jens Spahn suggested there could be a 'gradual return to normality' after eEaster if the current positive trend in numbers continues. Even in the worst affected nations there are reasons for optimism. Reports in Italy suggest restrictions could be eased on 4 May. And on Thursday morning, Spanish Prime minister Pedro Sanchez said the country may be finally passing the worst of the outbreak.
For the EU and the Eurozone, however, the process of economic recovery and normalisation could in some was prove just as challenging as the corona virus outbreak iteslf, with the financial implications now exposing tensions between the different countries in the Eurozone. A key area of disagreements is the suggestion, supported by Italy, Spain and France, for jointly issued recovery bonds to support economic activity, in other words 'mutualising' the debt and spreading the cost of the crisis across the Eurozone. Such a mutualisation of debt is strongly opposed not only by Germany (where the country's highest court has previously ruled that joint Eurobonds would be illegal)' but also by the Netherlands, Austria and Finland.
A further meeting of Eurozone finance ministers is scheduled for later today(Thursday). Meanwhile the concern is that a failure to reach agreement could give rise to another bout of market jitters about the stability of the euro or indeed the EU itself. In Italy in particular, there is very strong political resistance to any suggestion of conditionality's (of the kind that were imposed on Greece during the Greek debt crisis), and Italy's Prime Minister has suggested that failure to reach a deal would undermine the 'raison d'être' of the EU.