Structural changes will be

Weekly wrap

Structural changes will be

Foto: Yandex

Review March 28 - April 3, 2020

Main topic: The key event of the week is the conversation between US President Trump and Crown Prince of Saudi Arabia Salman, following which (with the mention of Putin), oil prices grew by 30% in a few minutes. This means that one of the most important world markets is under the control of the main players and there is no reason to expect panic.

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In addition, the picture of changes in sales in various sectors shows how stimulating demand is changing the structure of the economy. Obviously, the post-crisis picture will be different, but the scale of the changes is already visible.

Macroeconomics

The economy of Saudi Arabia was in a recession even before the last turmoil with the oil prices and coronavirus epidemic - in 4th quarter 2019 GDP fell 0.3% per year after falling 0.5% in the previous quarter; quarterly dynamics also showed two minuses in a row (-1.9%, then -0.7%).

At the same time, Spain's GDP growth became the weakest in 5 years. In March, Spain’s CPI repeated an anti-record since mid-2016 (+ 0.1% per year).

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A similar picture in France and Italy, as well as the eurozone as a whole.

CPI in the eurozone in March fallen record for the month, the index level is minimal for 5 years.

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Even more impressive is the collapse of economic sentiment in general and its sub-indices for industries and the service sector.

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Production PMI of Japan at the bottom since April 2009.

The same situation in South Korea, Canada, USA, Mexico.

In the Eurozone – the weakest since 2012.

A similar situation in all leading countries, including Russia.

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At the same time, China’s PMI, on the contrary, sharply recovered after the February failure -https://tradingeconomics.com/china/business-confidence

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Dallas Fed Index collapsed to historic lows. Same as New York ISM Index.

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The number of layoffs in the United States, according to Challenger, is the highest since January 2009. Weekly unemployment claimant statistics are even more spectacular:

But it is also incomplete - although it shows 10 million applications in 2 weeks, in reality there were so many in only one state of New York. Employment services simply do not have time to process such a phenomenal stream of requests, which is why the real picture can be visible only in a few weeks - https://www.fxstreet.com/analysis/soaring-unemployment-claims-point-to-a-big-hit-to-real-gdp-202004021507

Moreover, the monthly labor report did not have time to reflect what was happening - the reference week fell on March 8-14, i.e. before layoffs; in addition, the report contains a bunch of bugs due to the fact that the survey methodology is not designed for such events at all - for example, a considerable part of the epidemic’s “victims” that are taken into account are referred to as “busy but absent from work”. However, the April report promises to fill in the lack of information - apparently there will be record unemployment: according to forecasts, about 20%.

Conclusions: Despite the enormous infusion of money, the scale of structural imbalances in the world and the American economy is so great that it is not possible to restrain the spontaneous processes by compensation in a crisis. If complex political negotiations of world leaders were needed to stop the degradation processes in only one oil market, this is simply impossible for other markets. As a result, structural changes amid falling economies will continue.


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