Today, fear of the COVID-19 virus and therefore uncertainty sets again the tone for a risk-off sentiment in the important financial markets of the world.
In the meantime, China’s economy continues to give signs of economic bounce back in May with industrial production and retail sales continuing to improve.
Industrial production in China grew 4.4 percent year-on-year (y/y) in May and was up from +3.9 percent y/y in April, but remained below median expectations of a +5.5 percent y/y. Retail sales remained negative at -2.8 percent y/y, but improved from April’s -7.5 percent y/y result, but was also slightly below the expectations of a -2.3 percent y/y, the South China Morning Post said.
Investors could do well keeping in mind that these days practically all data from everywhere miss expectations because of the COVID-19 virus situation that makes talking about consensus averages a pretty meaningless concept. Numbers should be judged for themselves, not relative to the random expectations of, for example, a small group of economists.
Now, the fact that the retail sales numbers in China are improving a little bit more slowly than the industrial production numbers, which is not that unexpected because and in contrast with the United States and Europe, there was less so-called enforced saving by the Chinese consumers during lockdown.
There are also reports that parts of Beijing have been closed because of an increase in the number of new virus cases, which has of course caused for concern in the global financial markets, the Guardian said.
However, for investors it’s worth reiterating that the virus itself has almost no economic impact. It is fear of the virus that has an economic impact. If there are localized closures of parts of the economy while the fear of the virus in the wider economy does not increase then the economic impact is likely to be minimal.
From an economic point of view, today it is now less about monitoring virus case numbers and more about seeing where the mobility or credit card data react to any change in the number of cases.
Besides that, today the UK will be lifting some of its restrictions on shopping, but as around a third of UK retail sales have been taking place online throughout lockdown, the nature of the bounce back in the UK may differ somewhat from that we see elsewhere.
The UK retail environment is already experiencing a relatively rapid phase of structural change.
Also France has now accelerated the lifting of most of its lockdown restrictions. The easing of restrictions on shopping led to a sharp bounce back in retail activity, again as expected.
The just released Euro area April trade data show the impact of the COVID-19 virus containment measures that were widely introduced by the EU Member States on international trade in goods.
The first estimate for euro area exports of goods to the rest of the world in April 2020 was €136.6 billion (USD $153.8 billion), a decrease of 29.3 percent year-on-year (y/y). Imports from the rest of the world stood at €133.7 billion (USD $150.5 billion), a fall of 24.8 percent y/y. As a result, the Euro area recorded a €2.9 billion (USD $3.3 billion) surplus in trade in goods with the rest of the world in April, compared with +€15.5 billion (USD $17.4 billion) in April 2019.
For comparison, the U.S. trade deficit of $49.4 billion in goods and services with the rest of the world for April, which was released last week, with exports representing $151.3 billion and imports $200.7 billion, which year-on-year represents a decrease of the goods and services deficit of $26.0 billion, or 13.4 percent.
Finally, Fed Chair Jerome Powel will be on Capitol Hill Tuesday and on Wednesday where he will deliver the Federal Reserve’s semi-annual monetary policy report. As we got already the text of the report, we’ll have to wait to hear what comes out of the conversations.
Yes, it could, which doesn’t mean that it will be enlightening for investors as well as politicians ...
Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.
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