Independent Strategy

Macro Category

The recovery of the US labour market continues.  ADP reported 2.369mn jobs were added in June.  This was accompanied by a sharp upward revision to May’s report (initially reported as a loss of -2.760mn job and now revised to a gain of +3.065mn.  That might bring it closer to the May non-farm payrolls report (+2.509mn) but is nonetheless a rather astounding revision, which perhaps encapsulates the problem of accurately measuring the Covid shock.

The disruption from the Coronavirus continues to impact the data with the employment numbers for May showing a significant deviation from expectations and the near 2mn loss reported in the May ADP report.  Indeed, based on the preliminary numbers the economy added 2.51mn jobs over the month, which compares to the 20.69mn jobs lost in April.  Methodological problems are again in evidence ...

China

12th May, 2020 » China April Inflation

While some of the Chinese activity indicators might have perked up, there is no hiding from the disinflationary pressure stalking China’s economy.  April CPI dropped back to 3.3% yoy (4.3% in March) while PPI sunk to -3.1% from -1.5% in the previous month.  And the problem would be even worse were it not for persistent food price pressures as the impact of the earlier swine flue epidemic continues to pressure meat prices.  Indeed, CPI ex-food is now running at just 0.6%.

The monetary mutualisation of Eurozone debt (or its sovereign risk) through the ECB is becoming more likely.  The fiscal monetisation of debt through the issue of Coronabonds is becoming less likely. Monetisation is feasible.  The arithmetic works.  If you add up all projected fiscal deficits in the Eurozone for this year, the total comes to almost exactly the fire power the ECB has approved.

US

29th April, 2020 » US Prelim Q1 GDP

While the decline in first quarter GDP (-4.8% q/q ann.) was not unexpected, the outturn still doesn’t represent the full scale of the economic contraction.  The collection periods of the sample data are focused in the early part of the survey period and the assumptions the models make for the balance of the period rely heavily on these inputs.

China

15th April, 2020 » Hubei is not China

Total Covid-19 infections may just have broken the two million barrier globally. But there are encouraging signs that, at least in some places, active cases have already peaked. Scientists’ understanding of the disease is still in its infancy and there are many questions we don’t yet have clear answers to. In particular, if we’re all exposed to the same disease, why is there such a wide variation in apparent infection, fatality and recovery rates from country to country?

Bleak payrolls report.  While the median survey was always going to be a short in the dark, the -701k decline in jobs was significantly more troubling than the mkts -100k guess.  That’s the worst number since March 2009, a period of losses that saw five consecutive payrolls figures below the -700k mark starting from November 2008.  Looking at the past fortnights jobless claims figures the April number and revisions to this release will paint an even bleaker picture of the labour market.  In the household survey nearly 2.987mn jobs were recorded lost.

ADP reported fewer than expected job losses for March, with a modest -24k drop (mkt -150k), which compares to the 3.3mn jump in initial jobless claims last week.  Partly this is due to the survey dates (it tallies responses up to the 12th of the month).  So we will see catch up next month.  Prior month was revised down to 179k from 183k.

The rapid and devastating effect of Covid-19 on the labour market is unprecedented based on this week’s jobless claims.  Initial claims in week ending came in at 3,283k which looks like a data error rather than an actual real data point.  But real it is, and further increases look likely in the coming weeks as the economic stop continues to push people out of employment.

US household income growth looked pretty solid with a 0.6% m/m gain during January, which tends seasonally, to be a weaker month.  That lifts the y/y rate back to a shade under 4.0%, although the near-term trend remains one of moderation.  On the spending side the increase surprised on the downside at +0.2% m/m and that pulled y/y growth back to 4.5%

Global

25th February, 2020 » Corporate earnings health check

In recent years equity markets have been driven more by central bank largesse than by corporate profit performance. With bond yields close to record lows — in both real and nominal terms — investors have charged into higher-yielding risk assets with gusto. Still it behoves us to keep an eye on the underlying earnings picture.

China looks to have the Coronavirus (COVID-19) under control. The rate of daily infections has been on a clear downward trend since the start of the month, suggesting the initial measures to quarantine areas were largely effective. As knowledge and understanding improves, it seems highly unlikely this is a temporary lull, even if economic disruptions surrounding the outbreak become more prolonged.

Germany

14th February, 2020 » , AKK KO

Well, that didn’t take long. After last week’s debacle in Thuringia (see our report Thuringian tremors 7 February 2020) CDU leader Annegret Kramp-Karrenbauer (AKK) found her authority fatally undermined and announced that she would soon step down to allow a new leader to be elected in the summer.  This leader, she said, should also become the party’s chancellor candidate for the next federal election, scheduled for autumn 2021.

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