This week investors will continue to monitor the impact of the coronavirus epidemic on the global economy. It will be a week with a huge amount of data, including information on retail trade in the US and China, industrial production and inflation. GDP data in the UK, Germany, and the Netherlands for the first quarter will also be published. In turn, the central bank of New Zealand (RBNZ) will decide on interest rates.
Already in March, the macroeconomic data were very weak, and the April data may be even worse. It should be remembered that the lockdown started only in the second half of the third month of this year, which translated into a 4.5% drop in US retail sales, while industrial production fell by 5.4%. Due to the fact that April was a full month of the lockdown, the data could be much worse. This could result in a much worse publication for the entire second quarter.
On Tuesday, May 12th the US inflation data will be published. Due to the sharp drop in fuel prices, monthly inflation may fall by about 1%. However, food prices may rise. Overall, in the short term, there is no risk of high inflation, given the huge production gap, i.e. surplus supply in the economy. However, in the longer term (two or three years) it is not ruled out that inflation could start to return with double the force to devalue the debt just issued.
In the UK, GDP may fall by more than 2%. However, the UK economy could be most affected by the epidemic in the second quarter, as it started to implement restrictions very late. Then the fall in GDP may turn out to be double-digit, and it may take 2-3 years to recover from the recession.
From the central bank's point of view, on Wednesday 13 May at 04:00 a.m. the decision of the New Zealand Reserve Bank on interest rates will be published. According to the market consensus, the RBNZ will not change interest rates at this time. Nevertheless, still in April, the money market valued the cut of the main interest rate by 20 basis points in the first quarter of next year. Westpac's chief economist in New Zealand predicts that the RBNZ will reduce the main interest rate to minus 0.5 percent in November 2020.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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