Disastrous data from Europe (Daily analysis 23.04.2020)

23.04.2020 12:28|Bartosz Grejner

Although no one expected it to be good, activity declines in industry and (especially) services have far exceeded the market expectations, accelerating at a record pace. The PMI data indicate a 7.5% drop in the eurozone's GDP.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • 2:30 p.m.: Initial jobless claims in the US (estimates: 4.5 million).
  • 3:45 p.m.: PMI for the US services in April (estimates: 30 points).
  • 3:45 p.m.: PMI for the US industry in April (estimates: 35 points).

Quarter starts with steep losses

The March record low levels of the PMI indexes for the eurozone turned out to be even worse in April. The activity indexes of the industrial and services sectors reached their lowest levels in more than two decades, i.e. since the data were first released. Although it was expected to be bad, the scale of the decline in activity was beyond the economists' expectations. The index for the manufacturing sector in April was 33.6 points, 4.4 points below consensus and 10.9 points below the March level. However, it was the services sector that was more affected by the pandemic, and this was confirmed by a sharp drop in PMI from 26.4 pts. to 11.7 pts. - by as much as 11.1 pts. below the expectations.

Almost all sub-index components fell at a record low, except wages and prices of goods and services, which in April dropped at the fastest pace since 2009, the previous financial crisis. While it was anticipated that the Q1 and part of the Q2 were very likely to be subject to losses, the deterioration of business leaders' expectations for the next 12 months is alarming. They recorded an even deeper decline than in March, which may suggest a potentially relatively slow return to business normality rather than a very fast recovery (so-called v-shaped recovery).

April's PMI report for the eurozone also indicates a 7.5% contraction of the eurozone economy (in quarterly terms). Significantly lower-than-expected data (especially for services) may slightly worsen sentiment in the market, but the battle for the future seems to be at the forefront. Due to the gradual easing of restrictions, e.g. in some European countries or states in the USA, it may turn out to be much more important for the market what the state of business activity will be in May. It will help to estimate the pace at which the return to work may take place on the regular course of the economies and the extent to which the crisis may move into the third quarter.

Shortly after data from the eurozone came, the same readings for the British economy appeared. Their overtone was practically the same: a sharp decline in the services sector to 12.3 pts. (from 34.5 pts. and 27.8 pts. expected), as well as the industrial sector (from 47.8 pts. to 32.9 pts. compared to 42 pts. expected). The UK's Office for National Statistics (ONS) delivered interesting data today: 27% of employees of existing businesses and those who have temporarily suspended their activities are on leave. In the same group of companies, only less than 1 percent of employees were fired. On the one hand, a low percentage of redundancies seems to be good. This may suggest a chance for a smooth return to almost full economic activity. However, on the other hand, more than a quarter of the entire British workforce in companies still on leave highlights the deep decline in GDP, which has also suffered from the global slowdown and Brexit.

Worse-than-expected data from the Old Continent depreciated the euro today. The EUR/USD pair fell just below 1.08 in the morning, the lowest level since the first week of April. As a result, slightly stronger demand pressure on the dollar resulted in an increase of the USD/PLN to approx. 4.2240, although the volatility range remained limited. It may increase slightly in the afternoon when US investors will be more active, and also due to publications on the US economy.

In the afternoon, the PMI data (from IHS Markit) and the number of initial jobless claims submitted last week will be published. Both measures, which were usually somewhat secondary to market participants, are more important in the current pandemic situation. The zloty remained stable today, and apart from the aforementioned dollar, it was quoted at yesterday's closing levels. Lower-than-expected business activity in the eurozone may prevent the zloty from stronger appreciation. If we combine this with the globally stronger dollar, it may rather mean that the supply pressure on the Polish currency will increase in the short term.


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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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