Time for a recap

Another wave of grim economic news has shown that America’s economy is sinking into its worst recession in decades.

Another five million US citizens filed jobless claims last week, taking the total laid off since the Covid-19 lockdown began last month to over 22 million.

Economists believe America’s unemployment rate could have already risen to 15%, with further layoffs likely in the coming weeks.

New housebuilding projects also slumped last month, down 22%, as builders downed tools to comply with physical distancing rules.

Wall Street bank Morgan Stanley and asset management BlackRock both posted sharp drops in profits for the last quarter, as shares slid and deal-making dried up.

In the UK, Bank of England interest rate-setter Silvana Tenreyro has warned that the UK economy will suffer an “extremely large” hit from the Covid-19 crisis.

Economists have predicted that UK unemployment would hit 15% if the lockdown lasts for several more months.

Shoppers are already being hit in the pocket, with the price of essential items up 4.4% in the last month.

UK housebuilder Barratt has furloughed most of its staff, but many breweries are turning to home deliveries to keep their businesses afloat.

European stock markets have gained a little ground, with the FTSE 100 closing 0.5% higher.

One hedge fund, though, expects steeper losses in the weeks ahead.

Investors are now bracing for GDP figures from China overnight, likely to show its economy shrank at the fastest rate since records began in the 1970s.

Thanks for reading and commenting. GW

Despite today’s dire economic data, and the threat of further market turmoil, Europe’s stock markets have closed higher.

The FTSE 100 has just closed 30 points higher at 5,628, up 0.5%, ending two days of losses.

The EU-wide Stoxx 600 was lifted by around 0.6%, with small gains in Germany, France and Spain.

David Madden, analyst at CMC Markets, says traders ended the day hoping that the lockdown situation may ease soon:

Equity markets are higher today as Germany has become the latest European country to set out plans to gradually re-open some aspects of its economy. Certain businesses will resume trading next week, and schools will re-open next month.

Austria, Spain and Italy have all eased restrictions recently and there is a slight sense that countries have a better handle on the situation.

Britain, though, is facing a longer lockdown:

A leading US hedge fund has predicted that stocks could fall a lot further before this crisis is out.

Elliott Management thinks shares could fall 50% from the levels seen in February before the market mayhem began.

Reuters has the story:

Billionaire Paul Singer’s Elliott Management said global stocks could tumble more — ultimately losing half of their value from February’s high — as the world braces for the deepest recession since the 1930s-era Great Depression, according to a letter sent to clients on Wednesday and reviewed by Reuters.

The New York-based hedge fund firm, which controls $40.4 billion in assets and whose views on markets and economics are closely watched by investors, wrote that the sharp market decline seen between late February and late March “provided a heavy bookend to a dozen years of basically nonstop positive returns in global stocks, bonds and real estate.”

And the rout is likely not yet over.

“Our gut tells us that a 50% or deeper decline from the February top might be the ultimate path of global stock markets,” the letter said.

For the FTSE 100, that would mean dropping below 4,000 points (it’s currently around 5600, having briefly slumped below 5,000 last month).

Back in the US, the number of new houses being built has suffered its biggest decline since 1984.

New housing starts shrank by over a fifth last month, the biggest drop since America was recovering from the early ‘80s recession

CNN has more details:

Privately-owned housing starts declined last month to an annualized rate of 1.2 million, the US Census Bureausaid Thursday.

That represents a 22% decline from the pace in February.All four geographical segments in the United States were down, led by a 43% plunge in the Northeast, which is getting hit hardest by the health crisis.

Back in the UK, Bank of England policymaker Silvana Tenreyro has warned that the UK economy will suffer an “extremely large” hit from the Covid-19 crisis.

Tenreyro told an online seminar that aggregate spending will slump, as the government’s lockdown hits activity. But while some companies will see robust demand, the overall impact will be negative.

She explains:

An important aspect of the economic effects of Covid-19 is that they will be highly asymmetric. Firms that relied on social interaction or non-essential visits have had to close down temporarily, while others that can offer services remotely or by delivery have been less directly affected. Recent analyses have highlighted the different ways spending might be affected in sectors that can remain open.

On the one hand, firms that offer substitute products will see demand increase: for example, purchases of food from supermarkets instead of cafes and restaurants; or streaming of films or television in place of cinema trips or live entertainment. But on the other hand, all sectors will suffer from falls in demand owing to lower income and increased uncertainty elsewhere in the economy. In my view, the latter effect is likely to dominate.

So what is the Bank of England doing about it? Tenreyro, a member of the monetary policy committee, explains they have cut interest rates to record lows, launched a new scheme to encouraging lending, and announced another £200bn of QE.

That could help the economy recover, she hopes.

A crucial aspect is that much of its economic impact should ultimately prove temporary: many businesses that were viable and jobs that were needed before Covid-19 will be so again after it passes.

A key task for policy in the interim is to try to minimise those business failures and reduce job losses that would otherwise lead to persistent scarring effects. By doing so we want to prevent any lasting reduction in the supply capacity of the economy and help offset any persistent negative effects on demand.

Neil Birrell, Chief Investment Officer at Premier Miton:

“No surprise, the US jobless claims number is awful but around expectations. However, the number itself probably won’t affect markets that much. They are becoming immune. It’s all about how much longer this goes on for and the irreparable damage that is done. It does mean that the number of jobs created in the economy since 2009 has effectively been lost in the last few weeks; that’s the scale of this thing.”

Ronald Temple, Co-Head of Multi-Asset and Head of US Equity at Lazard Asset Management:

“The magnitude of this shock to employment is unparalleled in US history. The longevity of the downturn is the key question at this point. My concern is that investors are overly optimistic as we still have no proven therapeutic intervention for COVID-19 and we still are not testing on a sufficient scale to identify and quarantine asymptomatic infections. Until we can treat the illness effectively, it is difficult to see how we return to business as usual.”

Here’s former US Treasury economist Ernie Tedeschi:

Investment banker Dan Alpert of Westwood Capital tweets that most of the 22 million jobs lost in the last month have been ‘blue collar’ roles (people who produce goods and services, but don’t manage others)

‘White collar’ workers are next, he warns:

Here’s our US business editor Dominic Rushe on today’s grim US jobless numbers:

More than 22 million American have lost their jobs in the last four weeks as the coronavirus pandemic has swept across the US, according to government figures.

The US labor department announced on Thursday that another 5.24 million people filed for unemployment benefits last week, making a total of 22.2 million since 14 March when nationwide stay at home orders led to an unprecedented wave of layoffs across the country.

The largest number of people to ask for unemployment benefits in a four week period before the Covid-19 crisis came in 1992 when 2.7 million sought support.

The torrent of layoffs has swept across the country, and every sector of the economy, leading to backlogs and anger at state unemployment offices as people have struggled to make claims. The delays are likely to trigger further spikes in the figures in coming weeks.

“It’s akin to the entire country being hit by a hurricane,” said Jason Reed, assistant chair of finance at the University of Notre Dame. “And we don’t know when the hurricane is leaving.

This is the fourth week running in which millions of Americans have filed new jobless claims.

Before March, the record initial jobless claims total was below 700,000, and the idea of 22 million people losing their jobs in a month would have been unimaginable.

But that’s where we are now:

Newsflash: More than five million Americans signed up for unemployment benefit last week, as the US economy continues to slump.

The initial jobless claims total, just released, came in at 5.25m.

That’s another extremely high reading, and means that around 22 million people have filed initial jobless claims since the coronavirus crisis hit.

It’s slightly down from last week’s 6.6 million, and means that almost all the jobs created since the last financial crisis ended have been lost in the last month.

The coronavirus pandemic has pushed prices in the online shops up in the last month, today’s survey of the UK economy shows.

Prices in the ONS’s basket of ‘high demand products’, which includes food, cough medicines and cleaning products, have surged by 4.4% in the last four weeks, since lockdown measures began.

Prices rose by 1.8% in the last week alone -- or nearly the UK’s target for inflation over a whole year (2%).

The ONS reports:

Prices for the HDP basket increased by 1.8% from 30 March to 5 April (week 3) to 6 April to 12 April (week 4) with prices for all long-life food items decreasing by 1.5% and all household and hygiene items increasing by 1.1%.

At a more detailed level, prices for pet food and rice rose by 8.4% and 5.8% respectively, while prices of pasta sauce fell by 4.5% (note that the size of the sample means that sometimes single retailers can contribute to substantial movements at the item level).

The ONS says these statistics are ‘experimental’, and can’t be compared to the official inflation measures.

But the broad picture is that prices have risen in the last month, amid stockpiling and supply shortages. Pet food in particular. Rice, though, appears to have got cheaper.

A quarter of UK firms have temporarily closed or paused trading due to the coronavirus, as the economy shrinks.

Many of the 75% firms who are still trading have also furloughed some staff, as they try to ride out the crisis.

That’s according the Office for National Statistics’ latest weekly survey of the UK economy, just released.

Here’s the key points from the report:

• Of the 5,316 businesses responding to the Business Impact of Coronavirus (COVID-19) Survey (BICS), 25% reported they had temporarily closed or paused trading for the period 23 March to 5 April 2020, while 75% were continuing trading.
  
  
• For responding businesses who were still trading, an average of 21% of the workforce had been furloughed (under the terms of the UK government’s Coronavirus Job Retention Scheme) in the period 23 March to 5 April 2020.
  
  
• The Opinions and Lifestyle (OPN) Survey results show just over half of adults (53.1%) said the coronavirus (COVID-19) was affecting their well-being.
  
  
• Staying in touch with friends and family remotely is the most common action that is helping people cope with staying at home (76.9%).
  
  
• Overall, online prices of items in the high-demand products (HDP) basket have increased by 1.8% over the period week 3 (30 March to 5 April) to week 4 (6 April to 12 April).
  
  
• Daily shipping data shows, up to 11 April 2020 there has been a gradual decrease in daily ship visits to the UK during the past few weeks.

Bloomberg fears that today’s US jobless figures will show that America is heading towards a situation where one in five people are out of work.

That would be much worse than after the 2008 financial crisis - and the worse since the Great Depression.

What started as the worst-case scenario for U.S. unemployment is quickly becoming reality. Some economists now see the jobless rate surging to 20% as soon as this month -- and there’s no guarantee it would stop there.

About 5.5 million people are estimated to have filed for unemployment last week, in data due out Thursday. That would push the four-week total above 22 million, roughly one-in-eight of the workforce -- essentially wiping out all the job gains since the last recession.

More here.

Informa, the world’s biggest events company, is seeking to raise up to £1bn from investors to shore up its finances after being forced to postpone or cancel almost 500 events due to the coronavirus.

The FTSE 100 company has announced a range of cost savings measures to weather the global pandemic including scrapping the dividend, and opening talks with lenders over a debt covenant waiver. Staff salaries have been frozen and top executives are taking pay cuts.

Informa says it has rescheduled about 60 large and 350 small events worth more than £460m in revenue to later this year, and cancelled over 60 worth more than £150m.

Stephen Carter, Informa chief executive, and the company’s chief financial officer are to take a pay cut of a third, while the board and executive management team will sacrifice a quarter of their salary.

Informa said that in a “base case” it is assuming no revenue from events in the second quarter and a gradual and phased recovery at the end of the third quarter and through to the end of the year. A more severe “vigilant case” will not see events resume until the final few months of the year.

The company has already made £130m in cost savings, such as freezing capital expenditure and removing all discretionary costs, and Informa has £1.6bn of finance facilities.

Informa also gave an insight into what a gradual return to a new post-coronavirus world of international events and gatherings will look like, at least initially:

“We are working with local governments and authorities and venue owners to provide certified levels of biosecurity, enhanced hygiene, electronic registration, mobile data screening, density management and other relevant on-site checks and facility upgrades”.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

After some horrific data from America yesterday, investors are bracing themselves for another dreadful rise in US unemployment today.

The weekly initial claims report is expected to show that another 5 million Americans signed on for unemployment benefit in the first full week of April, after being laid off by employers struggling to cope with the Covid-19 lockdown.

This is on top of the 6.6 million claims filed in the week to April 4th, the record-breaking 6.8 million the week before that, and the 3.3 million in the first week of the lockdown.

It would lift the total number of Americans laid off in the last month to over 20 million -- a shocking, unprecedented surge in unemployment. Before this crisis started, the record jump in weekly jobless claims was below 700,000.

This surge in joblessness shows the US economy is falling rapidly into its deepest recession since the Great Depression of the 1930s.

On Wednesday, investors learned that industrial output across America fell at its fastest rate since 1946, when factories were winding down from their wartime mode. US retail sales shrank at a record pace, as consumers shunned the shops and obeyed the lockdown.

This dose of economic reality spooked the markets. Last night on Wall Street, the
Dow Jones industrial average fell 1.9% - after heavy losses in Europe knocked 3.3% off Britain’s FTSE 100.

Investors are losing faith in hopes of a “V-shaped” recovery, and recognising that the escape from Covid-19 will be a long haul - with two million cases now recorded worldwide.

Although some governments are starting to relax their containment plans, Britain’s government (we hear) doesn’t have an exit plan at all. We’ll get an update on the UK lockdown today, but it’s certain to be extended.

The big fear in the markets is that a second wave of infections forces governments to impose new lockdowns later this year, derailing any recovery.

Stephen Innes, chief global markets strategist at AxiCorp, explains:

Any recovery in risk sentiment depends on how quickly economies can reopen without risking overloading their healthcare systems and, most of all, not risking any chance of a secondary spread.

The risk of escalating economic damage is putting enormous stress governments under immense pressure to relax social-distancing measures sooner, rather than later.

Later today we’ll hear from IMF chief Kristalina Georgieva, and Bank of England policymaker Silvana Tenreyro, on the pandemic.

The agenda

• 9.30am BST: Bank of England survey of UK credit conditions
• 1.30pm BST: US initial jobless claims for last week
• 2.30pm BST: Bank of England policymaker Silvana Tenreyro gives a speech on monetary policy during pandemics
• 3pm BST: IMF chief Kristalina Georgieva holds virtual press conference