The stock market has ignored historically bad unemployment and needs to take into account record-setting declines in core CPI inflation and retail sales and industrial production.
The market seems to be numb to all the bad news and so its eyes might be set on the market pricing in a negative future fed funds rate. Fed Chair Powell’s appearance on Wednesday with a focus on his negative interest rates policy. He said on March 15 that “we do not see negative policy rates as likely to be an appropriate policy response here in the United States” so the expectation is that he will re-emphasize this.
This is important because how will the Fed be able to provide support to an economy facing a shock to aggregate demand if yields are at record low levels and negative interest rates are not an option?
Deutsche Bank expects real GDP to plunge nearly 40% annualized in the second quarter and that back half of the year growth will be ~10%! And DB expects real GDP to be 5% lower than 2019 through the end of 2021!
With the CPI report tomorrow (Tuesday), expect declines in prices of airfare, lodging, apparel, and car prices. Although the main one to watch is primary rents which may fall too…
Across the nation, states are loosening restrictions and opening up the economy again. The key thing I am watching is if we will have a big second wave of COVID infections. If we do and have to lock down again, I fear it would cause a depression.
In California, roughly 70% of the economy can reopen with restrictions as the state progressed to its second phase of activity. Schools opened in France, Norway and the Netherlands. Shopping malls reopened in Denmark and bars / outdoor restaurants restarted in parts of Spain. Shanghai Disneyland welcomed visitors for the first time since January.
The U.K. government released a road map for easing its lockdown, saying it will soon implement a two-week quarantine for some travelers arriving into the country. It plans to further loosen measures in June, which would allow schools to partially reopen, sports to privately resume, etc. In July, it hopes to open some other businesses, including pubs and restaurants.
South Korea reported 35 new cases, its biggest single-day rise since April 9, with a wave related to clubs and bars in Seoul.