Connect with us

Recession

19/4/2020: Two Scariest Charts in Economic History

19/4/2020: Two Scariest Charts in Economic History

Published

on


I have been posting quite a bit on U.S. unemployment and jobs destruction numbers coming from the COVID-19 pandemic. So here are two charts to watch into the future, and I will be updating these throughout the crisis here.

The first chart plots evolution of non-farm payrolls index for each official recession. I used as the index base average payroll numbers for 6 months prior to the first month of the recession. I then compute and plot the index from month 1 of the recession through the last month prior to the next recession.


The second chart is the average duration of unemployment claims or average weeks unemployed. Again, series start from the first month of officially-declared recession and run until the subsequent recession.

Both charts illustrate the contradictory nature of the post-2008-2009 recession recovery. Whilst the recovery has been the longest in duration (chart 1 above), it has not been the most dramatic in terms of employment creation relative to prior pre-recession peak (line "2008-2009" solid segment runs longer than any other line, but does not gain heights of at least 6 prior recoveries.  Per chart 2 above, recovery from 2008-2009 recession has been associated with unprecedented length of duration of unemployment. The series here stop at the end of February 2020, so they do not account for the recent jobs losses, simply because there has not been, yet, official announcement of a recession.

You can read on March-April jobs losses here: https://trueeconomics.blogspot.com/2020/04/16420-four-weeks-of-true-unemployment.html.

Stay tuned, as I will be updating these two charts as data arrives.

Read More

Continue Reading

Economics

EUR/GBP price prediction: is the bears’ pain over?

Ever since Brexit happened, the British pound gained against the common currency, the euro. Despite many analysts calling for the pound’s decline, it…

Published

on

Ever since Brexit happened, the British pound gained against the common currency, the euro. Despite many analysts calling for the pound’s decline, it gained ground in a relentless bearish trend.

The downtrend was so strong that even in 2022, some analysts believe that the EUR/GBP exchange rate will still hover around 0.84 in March 2023 – about 10 months from now.

Currently, EUR/GBP trades at 0.85, bouncing from its lows and looking constructive from fundamental and technical perspectives. So, where will the exchange rate go next?

Here is a price prediction considering both the technical and fundamental aspects.

The two central banks’ policies are set to diverge

Let’s start with the fundamental perspective. A currency pair moves based on the monetary policy differences between the two central banks.

In this case, the Bank of England was one of the first major central banks in the world that decided to increase the interest rate in the aftermath of the COVID-19 induced recession. Moreover, it did so not once but multiple times.

At the same time, the European Central Bank did nothing. It couldn’t do so, as a war started in Eastern Europe (Russia invaded Ukraine) in February.

In order to shelter European economies from the war’s economic impact, the European Central Bank preferred a wait-and-see stance. However, inflation is running way higher than the central bank’s target, and one of the causes is just the war.

As such, the central bank recently announced that it plans to end negative rates by September. Considering that the deposit facility rate is at negative 50bp, it means that a couple of rate hikes are on the table during the summer.

Yet, the Bank of England is now in a wait-and-see mode. Therefore, the fundamentals favor a move higher in the EUR/GBP exchange rate over the summer.

An inverse head and shoulders shows EUR/GBP struggling to overcome resistance

From a technical perspective, the market may have bottomed with the move to 0.82. It was quickly retraced, suggesting the presence of an inverse head and shoulders pattern.

A close above 0.86 should put the 0.90 area in focus. That is where the pattern’s measured move points to, and the move also implies that the lower highs series would be broken, thus ending the bearish bias.

All in all, EUR/GBP looks bullish here. Both technical and fundamental aspects favor more strength in the months ahead.

The post EUR/GBP price prediction: is the bears’ pain over? appeared first on Invezz.

Read More

Continue Reading

Economics

Weekly investment update – Weaker economic outlook weighs on markets

Global equities have continued their sell-off over the last week. What is new is that markets are now reacting to risks of weaker economic data weighing…

Published

on

Global equities have continued their sell-off over the last week. What is new is that markets are now reacting to risks of weaker economic data weighing on earnings. Real bond yields, whose rise triggered the recent drop in equity markets, have fallen as investors price a higher probability of a recession.   

Yields of US Treasury bonds have slipped since reaching around 3.12% in early May (see Exhibit 1). The rally has been driven by fears of a global recession due to poor economic data, strong inflation numbers, aggressive talk from central bankers and concerns over the consequences of Covid in China.

Recent data that contributed to the bond market’s unease about the prospects for the US economy includes: 

  • The Richmond Federal Reserve Manufacturing survey, which fell to its lowest since 2020 at -9.
  • The monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York fell to -11.6, with the shipment measure falling at its fastest pace since the start of the pandemic two years ago.
  • The Federal Reserve Bank of Philadelphia’s May business index dropped 15 points to 2.6, with the six-month outlook falling to its lowest since December 2008 (though the underlying details were better than the headline number).
  • Existing and new home sales dropped for a third month, to its lowest since 2020, held back by lean inventory, rising prices and higher mortgage rates. 

Taken together, the various regional Federal Reserve surveys suggest that the ISM Report for Business may come in at around 53, above 50 so still clearly in expansion territory for the US economy, but down noticeably from the upper 50s/lows 60s readings to which markets have become accustomed.

US equities still weak

US equities have remained weak as the down move continues for its seventh week.

It has been apparent that, in contrast to the start of the year when rising real bond yields were undermining equity markets, it is now fears of falling earnings due to a weaker economy that are weighing on stocks.

The last week has seen, in accordance with the risk-off regime, more buying-the-dip and selling-the-rally. There has also been a rotation out of growth and cyclicals into value and defensives (healthcare, real estate, utilities and staples).

European markets under the cosh

Bearish sentiment is prevalent in Europe, too, with investors cutting exposures to European equities.

There was another outflow in the week to 18 May, taking the total to 14 weeks of outflows in a row. Cyclicals, in particular, saw strong outflows, led by the materials, financials and energy sectors.

Our multi-asset team are inclined to reduce exposure to equity markets given the deterioration in the outlook.

European economy resists

Economic activity indicators have fallen so far in May, but remain above 50. Activity edged up in the manufacturing sector despite the fallout from the Ukraine war and supply chain disruptions that have intensified with China’s coronavirus lockdowns.

Although factories continue to report widespread supply constraints and diminished demand for goods amid elevated price pressures, the eurozone economy is being boosted by pent-up demand for services as pandemic-related restrictions are wound down.

While purchasing manager indices are still pointing to growth, it may be that these surveys understate the shock to activity, while sentiment surveys likely overstate the shock. Markets are increasingly tilting towards anticipation of a contraction in the coming quarters.

Higher food prices

Restrictions on the export of Ukrainian cereals continue and risks increasing food insecurity as the UN World Food Programme has highlighted.

As much of Russian and Ukrainian wheat goes to poorer nations, hunger could be a critical risk, driving up political instability.

The risk of further rises in food prices will be a key driver of inflation, particularly in emerging markets, the worst-case scenario being that the situation worsens significantly.

Moreover, lower fertiliser supply will have a greater impact on the next few months’ harvests, while the pass-through of costlier logistics and input prices is likely to drive food prices even higher.

Coming up…

Minutes of the meeting of the US Federal Open Markets Committee on 3-4 May will be published later on Wednesday.

However, market conditions have soured appreciably since the Fed’s first 50bp rate rise, so some of the language in the minutes pertaining to financial risks and market conditions will be outdated.

Instead, the three major focus points for market participants will likely be: 

  • Policymakers’ views on the conditions which could lead to a shift down, back to a pace of raising rates by 25bp at each FOMC meeting;
  • Any hints as to how far and for how long policymakers intend to push policy rates into restrictive territory;
  • Guidance shaping expectations for the next Summary of Economic Projections — aka the dot plot — due to be released at the June meeting. 

Forthcoming economic data  

US personal income and spending data for April should give investors an insight into the US consumer’s behaviour: Are they tightening the purse strings? The report may also show the Fed’s preferred inflation gauge (core PCE deflator) starting to decelerate.

Perhaps equally important, the report should shed light on how consumers are responding to the current high inflation environment, indicating how wages are performing relative to inflation and how aggressively consumers are tapping into the USD 2.5 trillion of accumulated savings from the pandemic period.

Disclaimer

Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Andrew Craig. The post Weekly investment update – Weaker economic outlook weighs on markets appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

Read More

Continue Reading

Economics

New Work Foundation Index reveals UK workers suffering most from insecure employment

New in-depth analysis of UK job market data reveals women, disabled people, ethnic minorities and young workers have been consistently trapped in insecure…

Published

on

New in-depth analysis of UK job market data reveals women, disabled people, ethnic minorities and young workers have been consistently trapped in insecure employment over the last twenty years.

Credit: Work Foundation

New in-depth analysis of UK job market data reveals women, disabled people, ethnic minorities and young workers have been consistently trapped in insecure employment over the last twenty years.

The Work Foundation, a leading think-tank dedicated to improving work in the UK, today launches its new ‘UK Insecure Work Index’ that details the prevalence of in-work insecurity felt by workers across the UK, and reveals how this insecurity has changed over the last two decades.

Using ONS labour market data from 2000 to 2021, the Work Foundation index focuses on three elements that can constitute insecurity at work – employment contracts, personal finances and access to workers’ rights.

Results reveal four groups of workers consistently trapped in the most severe category of in-work insecurity over the last twenty years, which has affected 20-25% of workers every year on average and an estimated 6.2 million employees just last year:

  • Young workers who are two and half times more likely to be in severely insecure work than those in the middle of their working lives (43% of 16-24-year olds vs. 17% of 25-65-year olds)
  • Women who are 10% more likely to be in severely insecure work than men (25% compared to 15%)
  • Ethnic minority workers are more likely to be in severely insecure work than white workers (24% versus 19%). Men from ethnic minority backgrounds are 10% more likely to experience severely insecure work compared to white men (23% versus 13%)
  • Disabled workers who are 6% more likely to suffer severely insecure work, compared to non-disabled workers (25% compared to 19%).

Data also reveals the sectors most at risk of severe in-work insecurity are hospitality, services and agriculture, which see one in three workers affected, compared to one in five nationally.

Ben Harrison, Director of the Work Foundation at Lancaster University, said, “At a time of a cost of living crisis, those in insecure and low paid work are among the groups at most risk. Wages have stagnated and while millions more people may be in employment, the quality and security of the jobs they are in often means they are unable to make ends meet.”

Job market data captured during the pandemic demonstrates that those in severely insecure work face the biggest risks in a crisis. During Covid-19, these workers were at greater risk of losing their jobs, were ten times more likely to receive no sick pay, were more likely to lose out on support through furlough or other schemes.

 “Our analysis shows that job insecurity is impacting certain groups more than others – in particular if you are a young person, a woman in work, from an ethnic minority background or have disabilities, you are more likely to experience severe insecurity in work,” Harrison continues. “With the Bank of England predicting inflation could potentially rise to 10% by the end of 2022, workers may be facing the largest real-term wage cut we’ve seen in generations.”

Former Chair of the Social Mobility Commission, Rt Hon. Alan Milburn, said: “The challenges facing millions of UK families due to job insecurity, low pay and lack of full-time work shouldn’t be underestimated. As the country faces the worst cost of living crisis in living memory, it is clear that more urgently needs to be done.

 “Social mobility has stagnated over recent decades and the UK Insecure Work Index confirms that severely insecure work significantly reduces people’s chances of escaping poverty. It is a stark reminder of the need to focus on access to more secure, better paid and higher quality jobs if we are to truly level-up the UK.”

TUC General Secretary, Frances O’Grady, welcomed the UK Insecure Work Index. She said: “Up and down the country, millions are trapped in jobs that have wildly unpredictable hours, low pay, and limited rights.

“For years working people were promised improved rights and protections. But ministers have now shelved the Employment Bill, which they said would help make Britain the best place in the world to work. 

 “Instead of tackling insecure work, ministers have sat on their hands and allowed it to flourish. In the midst of a cost-of-living emergency, it’s more important than ever that the government clamps down on low-paid precarious work.

“The time for excuses is over. We need to see government action to boost workers’ rights and end exploitative practices like zero hours contracts.”

Lord Gavin Barwell, Chief of Staff to the Prime Minister (2017-19) said: “Today for the first time ever, we have fewer people out of work than job vacancies. But, if low unemployment is a UK success story, the government and employers now face two challenges. First, how do we encourage people back into the market to meet the demand for labour? And second, how do we improve the security of those jobs and thereby level up the country?

“This timely report provides recommendations for what the government can do to improve security while maintaining the benefits of the UK’s current approach. The government is on the search for ways to use the regulatory freedom we now enjoy outside the EU: building on the success of the UK economy in creating jobs by ensuring those jobs are secure in the broadest sense of the word would be a great place to start.”

Ben Harrison adds: “In the immediate term, the Chancellor must raise Universal Credit in line with predicted inflation to ensure support through this cost of living crisis is targeted to those in low-paid and insecure work.

“And while plans for an Employment Bill that could have addressed many of these issues appear to have been shelved, the fact remains Government cannot hope to deliver on its ambition to Level Up the country without driving up employment standards and increasing the number of higher quality, better paid and more secure jobs on offer.”

The launch of the UK Insecure Work Index is the benchmark for the Work Foundation’s Insecure Work Research Programme, which aims to produce timely insights on insecure work in the UK going forward.

The UK Insecure Work Index report is published and available in full on the Work Foundation’s website on 26 May 2022: www.theworkfoundation.com.             

Ends


Read More

Continue Reading

Trending