Morning Commentary: April Showers, May Flowers?

Foreign Exchange - Morning Commentary
April Showers, May Flowers?
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
Shutdowns designed to stop the spread of the virus began during the second half of March.  This means that economic data pulling from March did not show the full economic impact of distancing measures.  All of this will change as April data starts to roll in.  Case in point, April US non-farm payroll data showed that the economy lost 20.5 million jobs with the unemployment rate rising to 14.7% from 4.4% last month.   

With the US economy starting to re-open in May, what will happen to May economic data?  To the extent that shutdowns are bad for the economy, re-opening, even if partially, should be good for the economy.  It is important to remember how the current downturn differs from past recessions.  Generally speaking, past recessions were due to some combination of cyclical excess, Fed mistakes and oil price shocks.  These issues took time to work through the system.  In contrast, the current downturn has been driven by a forced shutdown that took the economy from slightly above-potential output to a deep recession.  

The unique dynamics of the current downturn, combined with the massive amounts of fiscal and monetary stimulus, raises the possibility for a sharp rebound.  But a key variable here is how the infection rate reacts to the easing of measures.  

Notably, many states have begun re-opening despite not having a downward trajectory of cases/positive tests, sufficient testing and contact tracking.  Moreover, roughly 11 states with an increasing number of cases have begun re-opening.  This makes real time data important in gauging not only the infection rate but also economic activity levels.  

So far, Google mobility data shows an uptick in retail and recreation activities for states that have begun re-opening but the same can’t be said for workplace traffic.  OpenTable data also shows a slight uptick in “dining in” activity.  Ultimately, we are still in the preliminary stages of reopening and there remains no discernable difference in activity in the reopening states.  But this should change soon, making it important to closely monitor incoming data.  
  • US-China sentiment took a positive turn as the US and China spoke by phone overnight.  Both sides pledged to work together to implement the deal. 
  • Canada’s jobs report showed that the country lost ~2 million jobs, significantly better than the expectations for a 4 million job loss.  The unemployment rate also beat expectations with unemployment rising to 13.0% against an expectation for a rise to 18.1%.   
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