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Disastrous sales data from the USA (Afternoon analysis 15.05.2020)

15 May 2020 17:48|Bartosz Grejner

As expected, the data on US retail sales in April were dreadful and showed a historical decline. However, the scale of the decline exceeded expectations, underlining the difficulties that economies face. The increased tension between the US and China may have a negative impact on sentiment. The zloty is depreciating slightly.

Weak data from April

Friday afternoon brought another dire macroeconomic data. The Census Bureau reported that retail sales in the USA decreased in April by 16.4% on a monthly basis, clearly more than the expected 12.0%. However, if we exclude vehicles and fuels, whose sales dropped naturally due to the restrictions, the retail sales presented in this way fell by 16.2%. This was far from market expectations, which assumed a 7.6% decrease. As in the case of many macro data from March-April, these were the biggest falls in history.

If we look deeper into the sales figures, we will notice how deeply the pandemic and the associated restrictions have affected consumers and businesses of the world's largest economy in probably its worst month. To see how far the current situation is from the norm, it is good to compare it with April last year. And although vehicle sales and petrol station sales recorded a huge drop - by 32.9% and 42.8 % respectively - they did not stand out in this gloomy statistic. The sales of clothing fell by as much as 89.3%, furniture and home appliances by 66.5% and electronics by 64.8%, respectively.

The aforementioned data are not a perfect reflection of US consumer behaviour, as they do not contain a large part of the services that represent a major part of the economy. However, they may indicate what to expect further. In fact, this expected economic picture may be worse, and the recovery may be slower than expected not long ago.

Moments after the publication of retail sales data, the Federal Reserve also published data on industrial production in April. These were slightly above expectations. Industry recorded a month-on-month decline of 11.2% (consensus: -12%), and its largest component - manufacturing - recorded its largest decline since at least 1919, a 13.7% drop.

The data from the USA practically reflected the trend of the analogues data from China published in the morning - higher than expected production rate and significantly lower retail sales. This highlights the problem that world economies will face. It will be relatively easy to start supply, but the return of demand will be much harder due to the cautious attitude of consumers.

US-China relations are more and more intense

In addition to the pandemic and its unprecedented impact on the economies, practically every day brings a further increase in trade tensions between the US and China. In a statement published today, the US Bureau of Industry and Security (BIS) announced that it intends to "protect national security" and cut Huawei off from using US technology and software to produce its semiconductors. The US already blacklisted Huawei a year ago, but the Chinese company was sourcing from intermediary companies.

The pandemic has already strongly reduced international trade (decline in demand and supply) and additional tensions or restrictions only increase the risks of slower recovery. Besides the fact that the price of a trade war is ultimately paid by consumers in the USA, it has an economic impact on countries and regions heavily dependent on exports, including the eurozone, and potentially Germany in particular. This is probably also part of the campaign for the US presidential election in November, but it can only increase uncertainty about the potential recovery path.

Published macro data and information showing further deterioration of relations between the US and China (a retaliation in the form of restrictions on the US tech companies is also likely to be expected) have slightly increased the fluctuation range in the market, but have not made fundamental changes today. The main currency pair, i.e. the EUR/USD, moved around 1.079-1.085, although a slower-than-expected recovery combined with trade tensions may gradually strengthen the dollar in the global market.

That wouldn't be good news, at least in the short term, for the zloty. Despite the better-than-expected GDP data, the worsening of global sentiment will depreciate the zloty in relation to the main currencies. Perhaps except the pound, which is also going below in red on the global market - the GBP/USD exchange rate fell this afternoon to around 1.211, reaching its lowest level since the end of April. This also made it possible for the GBP/USD to move to ca. 5.11, even though the zloty lost slightly (about 0.1-0.2%) in relation to the euro (4.57 in the afternoon), the dollar (4.22) or the franc (4.34). The foundations for the zloty are good to strengthen when we observe the global recovery. In the short term, weakening market sentiment may increase the supply pressure on the Polish currency.

15 May 2020 17:48|Bartosz Grejner

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 acknowledgement of the source is prohibited.

See also:

15 May 2020 14:12

Germany in recession, Poland surprises (Daily analysis 15.05.2020)

14 May 2020 17:58

Tension between the US and China intensifies (Afternoon analysis 14.05.2020)

14 May 2020 13:09

Lower appetite for risk, the dollar appreciates (Daily analysis 14.05.2020)

13 May 2020 17:43

Warning issued by the Fed's chair (Afternoon analysis 13.05.2020)

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