Weekly Fundamental Bulletin: UK Prelim GDP, US & China Inflation Data

Last Week’s Highlights

US manufacturing PMI from ISM falls to an 11-year low

The latest manufacturing PMI from the Institute of Supply Management showed activity falling to an 11-year low. The index fell to 41.5 in April, down from 49.1 in the previous month. This was still higher than the forecasts of a decline to 36.9.

It was in April 2009 that the index fell to lows of 39.9. The price index fell to 35.3 from 37.4 in April and suggests that prices will continue to fall. In a separate report, the non-manufacturing PMI came in at 41.8, down from 52.5 in March.

European Commission cuts growth forecasts

The European Commission, in its latest forecasts, issued a grim warning that GDP growth for the Eurozone would contract 7.7% this year. The EC noted that the historic recession was a result of the major shocks from the Covid-19 pandemic.

The decline of 7.7% this year is, however, forecast to rise by 6.25% in 2021, marking a sharp V-shaped recovery. The region’s unemployment rate is expected to rise to 9.5% from 7.5% in 2019. Inflation forecasts show that consumer prices will remain at 0.2% this year but eventually rise to 1.1% next year.

BoE keeps rates steady but issues grim forecasts

The Bank of England held its monetary policy meeting on Thursday last week. As widely expected, the central bank left interest rates unchanged at 0.10%. But in a grim outlook, the BoE signaled that the UK’s economy will contract as much as 14% this year.

The vote to leave rates unchanged was unanimous but there were two dissenting votes in favor of increasing the asset purchases additionally by 10 billion GBP. The central bank said that it was ready to do more if needed.

The grim outlook comes as the latest PMI figures have fallen to record lows. And, inflation is expected to fall further from the 2% target rate.

China’s exports rebound in April

China’s dollar-denominated exports saw a big rebound in April, just a month after declining. Data showed that exports from China rose 3.5% on the month. Meanwhile, imports were still down 14.2% for the same period.

Economists forecast that exports would fall 15.7% for the period. Compared to a year ago, China’s exports are still down 6.6%, while imports are down 0.9% for the year. The trade surplus for April rose to $45.34 billion, comparing to $6.35 billion that economists had forecast.

US economy sheds 20.5 million in April

The latest monthly nonfarm payrolls report for April showed that the world’s largest economy lost 20.5 million jobs. As a result, the unemployment rate rose to 14.7%, up from 4.4% in March. The declines came after the US economy went into a lockdown pushing businesses to close doors temporarily.

The leisure and hospitality sector lost 7.7 million jobs. The average hourly earnings, however, rose to 4.7% in April, pushing the annual wage growth to 7.9% on the year, comparing to 3.3% in March.

Upcoming Economic Events

China inflation set to fall

Focus shifts to economic data from China. The monthly inflation figures will be reported this week. Headline inflation is forecast to rise by 3.7% in April. This marks a slower pace of increase comparing to the headline print of 4.3% in March. The producer prices index is however forecast to shrink 2.6%, extending from the 1.5% decline in the month before.

US inflation to contract in March

The consumer price index from the United States for April is forecast to show a 0.7% decline on a month over month basis in April. This follows a 0.4% decline in the previous month.

Core inflation, which excludes the volatile food and energy prices are also set to fall 0.2%, extending from the 0.1% decline previously. The monthly declines will see the US annual inflation rate rising at a pace of just 0.8%, down from 1.5% in March while the core inflation rate is set to fall to 1.7%, from 2.1% earlier.

Reserve Bank of New Zealand to hold rates steady

Wednesday will see the RBNZ holding its monetary policy meeting. With interest rates already being cut earlier, economists do not see another rate cut coming in this time. This will keep the interest rates steady at 0.25%. The RBNZ last cut rates in March this year. The central bank is likely to maintain a cautious outlook on the economy.

UK preliminary GDP set to contract in Q1

The UK’s quarterly GDP report is forecast to show a 2.5% contraction. This comes amid the monthly GDP activity set to fall 7.9%. The forecasts come amid a slowdown in various business indicators. The BoE, in its recent review, forecast that the economy could fall even further.

The quarterly report comes as the UK was closed for business for the most part of April, since early-mid March. Various other reports also include manufacturing, construction production, and output data. All measures are set to show a decline in activity.

Australia unemployment set to rise in April

The monthly unemployment report for April is forecast to show a surge in the unemployment rate. Economists predict that the unemployment rate will rise from 5.2% in March to 8.3% in April. The economy is forecast to show 550,000 jobs being lost during the month. The report comes as the Australian economy was also affected due to the pandemic outbreak.