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Intesa Sanpaolo : The epidemic “will weigh heavily on economic activity“

Intesa Sanpaolo : United States – At its April meeting, the FOMC reinforced its commitment to act aggressively and proactively in the face of the COVID-19 emergency.

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Weekly Economic Monitor – Weekly Economic Monitor – 30 April 2020

Intesa Sanpaolo – Research Department

The Committee warned that the epidemic “will weigh heavily on economic activity” in the near term, and “poses considerable risks” in the medium term but refrained from making forecasts.

As regards monetary policy, the Fed maintained its generic forward guidance on rates, also in light of market expectations considered “appropriate”, while purchases will continue in order to support the functioning of the market. In the present phase, the Fed will keep a navigating by sight, using all the tools available.

United States. The April Employment Report , due out next week, will shed light on the deterioration of the labour market at the height of the lockdown, probably outlining a collapse in non-farm payrolls by around -19 million, and a rise in the unemployment rate to around 15%, setting a new post-WWII high, but below the peak reached during the Great Depression, as a result of the expected contraction of participation.

The ECB’s latest monetary policy measures are aimed at the money market and guarantee generous liquidity conditions to all segments of the European banking system. No particular changes emerged about the purchase programs, except that the ECB considers the PEPP as a program that renders OMTs useless in these circumstances, thanks to its flexibility.

The week’s market movers

In the Eurozone, March industrial output data will be released this week: unprecedented contractions are forecast both in Germany (-17.8% m/m) and France (-20% m/m), due to the effects of the shutdown imposed by the national governments.

The second estimates of April PMIs should confirm the composite Eurozone index at a long-term low of 13.5, from 29.7, the manufacturing index at 33.6 from 44.5, and the services index at 11.7 from 26.4. Lastly, euro area retail sales are also seen to plunge in March, by -10.0% m/m from 0.9% m/m.

This week, only a few data releases are lined up in the United States . Focus will be on the April Employment Report, expected to be extremely negative, but also affected by major uncertainties in terms of both job losses and the increase of the unemployment rate, due to multiple factors tied to the definition of the variables and to individual behaviour.

The message will in any case be consistent with the indications provided by data on jobless claims: record-breaking drop of employment figures and surging unemployment rate to around 15%, well above the high hit during the great recession.

The April non-manufacturing ISM is expected to crash to long-term lows, as has been the case for all the other April survey indices. New jobless claims should stay at around 4 million in the closing week of April.

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