Economic damage done by Covid-19

Coronavirus

As we continue to look at the economic damage done by the coronavirus, yesterday’s focus was on the U.S. ISM manufacturing PMI, which rebounded a little and gave some optimism to markets. The data may suggest that the worst is past for the U.S. economy and that the slowdown in factory output could end soon.

I’m not so sure though, we really need to wait and see the post lockdown economic data to draw hard and absolute conclusions.

Also in the U.S., we are witnessing historic levels of unemployment, racial unrest, rioting and all this on-top of the devastating effect of Covid-19. The level of destruction the virus has left in its wake, as economies desperately attempt to re-open, is being laid bare before our eyes – and it’s not a pretty sight. Troubling times.

Manufacturing data

The ISM data showed that the manufacturing index climbed to 43.10% in May up from April at 41.50%. A reading of under 50 indicates contraction, above 50 suggests expansion.

Yesterday’s data also showed that South Korean exports had fallen by nearly 24% in May, which was worse than expected, but better than April’s 25% decline.

Manufacturing activity in South Korea declined at the second fastest rate since 2009, only improving slightly from April.

Japan’s factory activity also contracted, and at the sharpest pace since 2009, PMI data showed. China’s manufacturing PMI showed a small expansion but the damage to global trade from the pandemic left new export orders still in contraction.

PMI data

PMI’s remember, only ask if survey participants ‘think’ things are better or worse than the previous month, so they give a general snapshot of economic activity – not a complete picture. A reading over 50 simply tells us ‘things’ are better than the previous month – not a high standard to exceed right now.

Business data

The real economic data is yet to be revealed. This data set will look at the period after lockdown restrictions were eased or ended. This will demonstrate the true level of damage inflicted on economies.

It is reported that all 50 U.S. states are now in the process of some form of re-opening.

Scheduled market events to keep an eye on

Tuesday 2nd June 2020

  • Australia – interest rate decision

Little scheduled economic data due for release today, Tuesday 2nd June.

Wednesday 3rd June 2020

  • Australia – GDP data due
  • Germany – unemployment data due
  • EU – unemployment data due
  • U.S. – ADP employment data due, PMI non-employment data due, non-manufacturing PMI data due
  • Canada – interest rate decision and statement due

Brief hope that the China – U.S. tension may subside a little were dashed when China reacted to Trump’s press conference on Friday 29th May. China indicated that they are set to pause the purchase of certain U.S. products such as soybeans.

Unfounded optimism?

But the situation in Hong Kong and the tension between U.S. and China are largely being shrugged off by markets at the moment.

Investors, traders and market makers pretty much see the glass half-full even though the full extent of the economic fallout is yet to be revealed. Furlough schemes and fiscal stimulus measures may protect businesses and workers in the short term, but this will likely only delay the real pain yet to follow.

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