Fidelity: Opnieuw vertraging in Eurogroep terwijl tijd dringt voor meer overheidssteun

April 10, 2020

Macro briefing: Clock ticking on further fiscal support

The Eurogroup of finance ministers continue to discuss additional backstop facilities for the Euro area.

US unemployment jumps for third week as Fed extends support

The weekly initial jobless claims number was 6.6 million versus the expected 5.25 million. Consensus estimates have consistently underestimated the number for the past three weeks. Last week’s figure was revised up to 6.9 million, which pushes the three-week newly unemployed to nearly 17 million, or around 10 per cent of the US workforce. The US Federal Reserve stole some of the jobless claims attention by announcing it is providing an additional $2.3 trillion in loans to deliver credit to small businesses and municipalities.

We believe that prolonged and high US unemployment could lead to cascading negative impacts if the CARES Act proves inadequate in alleviating the cash flow stress among households and businesses. Read more about the effects of US unemployment here.

A quick word on the monthly nonfarm payrolls number released on 3 April, that showed a decline of 700k, the first drop since September 2010 and seven times the consensus estimate. But the usually keenly watched announcement is taking a backseat to more high frequency data especially given the cut-off date for nonfarms was 14 March, so it will not have captured more recent job losses.

Eurogroup delay fiscal measures, again

The Eurogroup of finance ministers continue to discuss additional backstop facilities for the Euro area. A press conference scheduled for Wednesday was postponed in order to allow time for further negotiation, after the group failed to agree a way forward. This followed a similar stalemate at a meeting two weeks ago. Additional purchases of securities previously announced by the ECB can help contain volatility and absorb some of the extra bond issuance in the Eurozone, but given the ECB’s legal restrictions, fiscal policymakers need to step in. The main sticking points appear to be around the conditions to tap the European Stability Mechanism (ESM) credit lines and over the potential issuance of mutualised debt instruments (‘coronabonds’). Unless politicians reach an agreement soon, the market might conclude that the Italian debt burden is unsustainable and Italian bond yields may spike again.

Fidelity Leading Indicator plunges

The Fidelity Leading Indicator (FLI) is already half-way to its Global Financial Crisis trough. The proprietary quantitative tool is designed to anticipate the direction and momentum of global growth over the coming months, and it signals negative and worsening growth. Consumer strength, so pronounced last year, has sharply deteriorated. Business surveys, such as PMI’s, commodities data and global trade have all fallen away. Only industrial orders remain in positive growth, but this was based on February data which rebounded following poor results at the turn of the year - it’s unlikely to last