The Fed Looks to Bolster Confidence in Markets with Promise to Use "Full Range of Tools"
Economic Report Monitor #24
April 29th, 2020
Midway through the last week of April, investors got a good look into the COVID-19 economy with the first estimate of 2020 Q1 GDP and an FOMC announcement on top of other smaller reports. Markets opened higher and stayed higher all-day. Companies continued to release earnings seeing major declines in revenue and profits including Boeing which saw a $641 million loss. This trend was supported by the April version of the Atlanta Fed's Survey of Business Uncertainty which saw expected sales growth plummet -53.7 pts to -0.3. Employment and capital investment expectations also fell but not as quickly. However, if sales uncertainty prevails for some time, cash flow problems could bleed into employment and capital investment pessimism.
Earlier in the morning, the first GDP estimate for 2020 Q1 was released at -4.8%, most likely the beginning of a recession caused by COVID-19. Most notably, the driver of GDP growth in the past, personal consumption, fell -7.6% with durable goods consumption cratering -16.1% and service consumption also hit hard down -10.2%. Nondurable goods posted a solid quarter up 6.9% bolstered by stockpiling. Nonresidential investment fell -8.6% as businesses were shuttered. Residential investment though was up 21.0%.
Imports and exports declines indicated trade was hit extremely hard. Exports fell -8.7% as businesses froze for the lockdown. Goods exports were slightly lower at -1.2%, but services exports were hit much harder at -21.5%. Imports fell even harder, down -15.3%, as demand for foreign goods collapsed. Service imports fell -29.8%, and goods imports fell -11.4%. The disparity in exports and imports highlights how much harder the US has been hit by the virus than its trade partners. This is especially the case with China, one of the US's largest trading partners, already entering the main reopening process.
In the wake of the painful GDP release, the Federal Reserve released its statement from the April meeting after keeping rates unchanged at 0.00-0.25%. The statement admits the current crisis "will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term." It also points out that the current crisis was "induced" in search of a public health solution to the outbreak. Looking forward to a swift recovery after the virus threat has been mitigated, the Federal Reserve "expects to maintain this target range" of interest rates until "the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals." In addition to keeping interest rates low, the Fed "is committed to using its full range of tools to support the US economy."
The Fed's statement was one of admittance, that the economy is in freefall, but also one that confirms the central bank's intentions to support V-shaped recovery at all costs. The expectation of limitless direct support to liquidity looks to have already indirectly sparked confidence in equity markets which have been on a tear since coming off the bottom. The drawback to this financial solution is that any failure in the Federal Reserve's response could cause depression-like symptoms in all sectors of the economy.
One of those sectors, energy, saw another update a week after oil futures markets went negative. The weekly petroleum status report showed crude oil stockpiles building again. For the first time though, the inventory build was shared by the Strategic Petroleum Reserve (SPR) as it took on 1.2 million barrels of the 10.1 million barrel build. Domestic production showed no real signs of slowing though as it fell just -100k b/d to 12.1 million b/d, only 200k b/d below a year ago. On the more bullish side, consumption increased with refinery inputs up 305k b/d and product supplied up 1.7 million b/d (though both are still well below a year ago).
April 29th, 2020
Midway through the last week of April, investors got a good look into the COVID-19 economy with the first estimate of 2020 Q1 GDP and an FOMC announcement on top of other smaller reports. Markets opened higher and stayed higher all-day. Companies continued to release earnings seeing major declines in revenue and profits including Boeing which saw a $641 million loss. This trend was supported by the April version of the Atlanta Fed's Survey of Business Uncertainty which saw expected sales growth plummet -53.7 pts to -0.3. Employment and capital investment expectations also fell but not as quickly. However, if sales uncertainty prevails for some time, cash flow problems could bleed into employment and capital investment pessimism.
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| From ZeroHedge |
Earlier in the morning, the first GDP estimate for 2020 Q1 was released at -4.8%, most likely the beginning of a recession caused by COVID-19. Most notably, the driver of GDP growth in the past, personal consumption, fell -7.6% with durable goods consumption cratering -16.1% and service consumption also hit hard down -10.2%. Nondurable goods posted a solid quarter up 6.9% bolstered by stockpiling. Nonresidential investment fell -8.6% as businesses were shuttered. Residential investment though was up 21.0%.
Imports and exports declines indicated trade was hit extremely hard. Exports fell -8.7% as businesses froze for the lockdown. Goods exports were slightly lower at -1.2%, but services exports were hit much harder at -21.5%. Imports fell even harder, down -15.3%, as demand for foreign goods collapsed. Service imports fell -29.8%, and goods imports fell -11.4%. The disparity in exports and imports highlights how much harder the US has been hit by the virus than its trade partners. This is especially the case with China, one of the US's largest trading partners, already entering the main reopening process.
In the wake of the painful GDP release, the Federal Reserve released its statement from the April meeting after keeping rates unchanged at 0.00-0.25%. The statement admits the current crisis "will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term." It also points out that the current crisis was "induced" in search of a public health solution to the outbreak. Looking forward to a swift recovery after the virus threat has been mitigated, the Federal Reserve "expects to maintain this target range" of interest rates until "the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals." In addition to keeping interest rates low, the Fed "is committed to using its full range of tools to support the US economy."
The Fed's statement was one of admittance, that the economy is in freefall, but also one that confirms the central bank's intentions to support V-shaped recovery at all costs. The expectation of limitless direct support to liquidity looks to have already indirectly sparked confidence in equity markets which have been on a tear since coming off the bottom. The drawback to this financial solution is that any failure in the Federal Reserve's response could cause depression-like symptoms in all sectors of the economy.
One of those sectors, energy, saw another update a week after oil futures markets went negative. The weekly petroleum status report showed crude oil stockpiles building again. For the first time though, the inventory build was shared by the Strategic Petroleum Reserve (SPR) as it took on 1.2 million barrels of the 10.1 million barrel build. Domestic production showed no real signs of slowing though as it fell just -100k b/d to 12.1 million b/d, only 200k b/d below a year ago. On the more bullish side, consumption increased with refinery inputs up 305k b/d and product supplied up 1.7 million b/d (though both are still well below a year ago).
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