Simply Economics

The great wave of central bank stimulus is finding a home in the equity markets as the great wave of fiscal stimulus is supporting consumers and driving up retail spending. Jeremy Hawkins and Mark Pender consider the outlook for stimulus, including the risk to financial markets of it winding down should Covid-19 cases begin to ebb.

Economic data in Asia, tied to infection levels, are diverging with China bouncing back but others still contracting. For the US, Friday's jobs report will update whether the US is also bouncing back, if not then pressure for fiscal stimulus would heat up even further. In Europe, rising infection levels are raising questions over the third-quarter outlook.

Heightened rates of infection, especially in the US, are pulling down consumer and business outlooks in results that do not support a 'V'-recovery. Jeremy Hawkins and Mark Pender also discuss upcoming indicators including US GDP, where massive contraction is expected, as well as Germany's CPI which is at risk of being skewed lower by a cut in value-added taxes.

The good news is that Europe's recovery agreement marks a positive step toward a harmonised fiscal policy and takes a little of the heat off the European Central Bank to further stimulate growth. However, securing the prospective transfer of wealth from the European Union’s northern members to its southern states has highlighted major differences over economic policy and done little to bolster the Eurozone’s political credibility.

No new stimulus is expected from the ECB on Thursday though the outlook for the EU leaders summit at week's end, and details on an expected €750 billion bailout fund, is less certain. Jeremy Hawkins and Mark Pender also discuss the latest global data along with US fiscal policy as well as the UK's move to ban Hauwei and what it might mean for post-Brexit trade.

How much of Hong Kong's distinctive character is permitted to survive will be key to how foreign businesses respond to China's security move. And what advantages Hong Kong loses as a financial center will likely pass to two rival financial centers, Singapore and Shanghai. Our panel also discusses high-flying stock prices in the US, economic resilience in Switzerland, and lack of progress in Eurozone recovery plans.

Economic damage from the coronavirus appears to have been comparatively less severe in Europe, reflected in retail sales data, including from Germany, that have been rebounding sharply higher. German employment has also been favorable, showing only minimal damage and underscoring the success of the government's crisis efforts. Unemployment benefits, value added taxes and US employment data are also discussed.

Flash PMIs for June are pointing not to increasing rates of growth but to stabilization near the deep lows when the virus first hit. Economic risks posed by rising infections in the US and clusters of infections in Europe are also discussed as are yield curve controls, Italian bonds, as well as social distancing rules for UK pubs.

Government stimulus together with pent-up demand drove US retail sales sharply higher in May, raising the question whether consumer spending in Europe may also rebound. Other topics include quantitative easing at the Bank of England, foreign exchange intervention at the Swiss National Bank, and Europe's stake in ongoing Brexit negotiations.

Outside of May's wildly strong US employment report, there is very little if any evidence of economic strength, whether in the US or Europe. Jeremy Hawkins and Mark Pender also discuss the outlook for Wednesday's Federal Reserve announcement and revisit last week's European Central Bank meeting that produced a burst of new QE.