Three spots you can’t take your eyes off: US-China/Europe/Turkey — “Highlights for the week of May 11 and event schedule”
Last week, surprising numbers came out in the U.S. employment statistics.
U.S. Nonfarm Payrolls for April
U.S. unemployment rate for April 14.7% (forecast 16.0%)
This is said to be the worst figure since WWII.
However, because it beat expectations, stock prices rose.
Did it really beat expectations...?
Because monetary policy has implemented large-scale easing, easing money may be flowing into the stock market, making the situation look disconnected from the economy and causing it to rise.
There are GDP releases this week as well, and a similar phenomenon may occur, so I want to stay vigilant.
◎ This Week’s Points of Attention
1) U.S.-China Relations
The United States continues to criticize China, saying that China is responsible for the source of the coronavirus and the spread of the infection.
This China criticism is spreading to Australia, the United Kingdom, and others.
Naturally, China is pushing back, with Chinese sources stating that the criticism of Trump depends on the election, etc.
This week too, the criticism battle between the U.S. and China is expected to continue; all eyes are on whether it will remain mere rhetoric or move to sanctions or tariffs.
If actions such as sanctions or tariffs are taken, there is a risk-off move that could intensify, so beware.
2) Euro Area
The euro has been weakening due to the Germany vs. ECB relationship.
What’s problematic is that Germany, one of the founding members of the ECB and the EU’s largest economy, has criticized the ECB’s policies.
It may not happen, but if Germany were to oppose ECB decisions and pursue its own stance, it could lead to the collapse of the EU/ECB system.
For now, Germany seems to have only raised criticisms and posed questions.
ECB’s response will be watched closely to prevent further escalation of this issue.
Additionally, economic indicators are being released across Europe, showing clear signs of a recession.
It remains to be seen whether current policies can lead to a recovery and when the economy will reopen after COVID-19.
3) National GDPs
This week, the UK and Europe will release preliminary GDP (Q1) figures.
In Europe, economic activity effectively stopped around March due to containment measures.
We will be watching what numbers come out.
If results are worse than expected, it is likely to affect GDP forecasts for Q2 (April–June), and additional economic measures may be required.
As noted above, in Europe the dispute over easing policies between Germany and the ECB could further inflame matters, so watch closely.
4) Turkey
Turkey has been getting a bit dodgy recently.
With dwindling foreign currency reserves, there are concerns about payments, leading to the selling of the lira.
The decline in the lira increases the payment burden, which is a negative factor.
As a rescue measure when foreign reserves are short, Turkey would seek a swap arrangement with the United States, but relations with the U.S. have deteriorated after Turkey purchased Russia’s S-400 missile system, so a swap deal has not been possible.
This has accelerated the lira’s depreciation.
Additionally, Turkish banking authorities have halted lira trading with BNP Paribas, UBS, and Citigroup, among others.
As a result, liquidity in the interbank market for the lira has fallen, and spreads have widened.
Domestically, OANDA halted new orders, and Rakuten Securities issued warnings to consider a possible trading halt.
The large number of long lira positions suggests a knock-on effect could trigger a rapid lira drop, so be cautious.
5) Emerging Market Currency Crisis
What is happening in Turkey is applicable to other emerging markets as well.
In Korea, for example, foreign exchange reserves have dramatically decreased, and a currency swap agreement with the U.S. has already been used.
Currencies in Mexico, Brazil, South Africa, etc., are also weakening.
A currency depreciation can lead to ballooning debt and higher default risk, potentially causing a cascading collapse of emerging market currencies.
Keep an eye on currency depreciation.
Example: Currency depreciation leading to increased debt
If you borrow $100
If 1 USD = 100 JPY: 100 dollars × 100 yen = 10,000 yen to repay
If 1 USD = 125 JPY: 100 dollars × 125 yen = 12,500 yen to repay
Thus, when currency depreciation occurs, debt repayments increase even if the amount borrowed does not change
◎ This Week’s Economic Event Schedule
May 11 (Monday)
08:50 JPY Bank of Japan Policy Board minutes (April 27)
16:00 TRY Turkey Quarterly Unemployment Rate
May 12 (Tuesday)
10:30 AUD NAB Corporate Confidence
10:30 CNY China CPI (Consumer Price Index)
15:00 NOK Norway GDP
21:30 USD U.S. CPI (Consumer Price Index)
22:00 USD Ballard, President of Federal Reserve Bank of St. Louis, speeches
23:00 USD Waller, Vice Chair of Fed, Harker, President of Philadelphia Fed, speeches
May 13 (Wednesday)
03:00 USD U.S. Monthly Budget Statement
06:00 USD Mester, President of Federal Reserve Bank of Cleveland, speech
09:30 AUD Westpac Consumer Confidence Index
11:00 NZDRBNZ Policy Rate and Statement Release
15:00 GBPUK GDP (Q1) Preliminary
16:00 TRY Turkey Current Account
23:30 USDCrude Oil Inventories
May 14 (Thursday)
10:30 AUDAustralia Employment Change and Unemployment Rate
15:00 EUR Germany HICP (CPI)
16:00 EUR Spain HICP (CPI)
16:00 TRY Turkey Retail Sales
19:30 GBPBailey, BoE Governor, Speech
21:30 USD Initial Jobless Claims
May 15 (Friday)
00:15 CADPoloz, BoC Governor, Speech
03:00 MXNMexico Policy Rate Announcement
07:30 NZD NZ Manufacturing PMI
11:00 CNY China Industrial Production and Retail Sales
15:00 EUR Germany GDP (Q1) Preliminary
15:45 EUR France HICP (CPI)
18:00 EUR Italy HICP (CPI)
18:00 EUREuro Area GDP (Q1) and Employment Data
21:30 USDU.S. Retail Sales
23:00 USD University of Michigan Consumer Sentiment Index
May 16 (Saturday)
02:00 USD Baker Hughes Rig Count
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