Direction vs Degree?

The discrepancy between the stock market and the US Treasury market is glaring again just as we’ve seen before. I believe the stock market seems to be mostly focused on the direction of the economic improvement that will come with a reopening while the Treasury market is likely more focused on the degree of that improvement.

Following the increase in bullishness seen in the II data yesterday but not to any extreme, the AAII data got less bearish. Bears fell 6 pts to 44 while Bulls rose 5.7 pts to 30.6 after falling by 10 pts last week. For perspective, Bears stood at 52.1 in late March while Bulls bottomed at 29.7. Meanwhile the CNN Fear/Greed index is Neutral at 46 out of 100. I’d say if you mixed this all up into one soup, we’d be in no man’s land sentiment wise.

After the Fed touted all the tools that they’ve unleashed while Jay Powell reminded the fiscal authorities of their importance here, ECB President Lagarde today is likely to take the same approach. After also sharply increasing the size of their balance sheet with many hundreds of billions to go (they will add about 1 Trillion euros on this go around), Lagarde will again press governments for more fiscal help. We’re getting it but it will be her way of saying there is only so much the ECB can do.

ECB BALANCE SHEET

As the Chinese economy continues to reopen with domestic business certainly better than the export side, the April state sector weighted manufacturing and services index rose a touch to 53.4 from 53 with a bounce in services to 53.2 from 52.3 offset by a drop in manufacturing to 50.8 from 52. Services were a bit better than expected while manufacturing was slightly less. Much of the weakness in manufacturing not surprisingly was the export side which fell sharply to 33.5 from 46.4. Within services, new orders got back above 50 and business activity expectations rose to 60.1 from 57.3. Bottom line, China’s economy is becoming more dependent on themselves and less reliant on its trading partners for growth, a path the US went on over the decades.

The private sector weighted manufacturing index for April fell to 49.4 from 50.1. The estimate was 50.5. Caixin said simply “China’s economic recovery was hindered by shrinking foreign demand, despite the domestic epidemic being largely contained.”

We got an April number from Japan and it was its consumer confidence index and it fell to just 21.6 from 30.9 in March. That was 6 pts below the forecast and the lowest print on record dating back to 1982. The number is not market moving and as economies reopen again this should improve.

JAPANESE CONSUMER CONFIDENCE

The number of unemployed in Germany in April skyrocketed to 373k, well more than the estimate of up 74.5k and the unemployment rate jumped to 5.8% from 5%. Not even the German work share program, where the state pays some of the employee wages who see less hours or even a furlough, can offset what is going on. Again, this is what you get when one shuts down, self inflicted damage. Notwithstanding the large miss relative to expectations, the euro is little changed. Bund yields though are lower as is the DAX.

The initial GDP read for the Eurozone in Q1 saw a decline of 3.8% q/o/q (14.4% annualized) as expected with the month of March reflecting the shutdowns, earlier than the US where it really only started in the last 2 weeks of March. Obviously then Q2 will be weak as well. The French economy in particular contracted by 5.8% q/o/q (21% annualized), worse than the estimate of down 4% with consumer spending particularly weak as was investment. Imports and exports were both weak but offset each other in terms of its GDP contribution.

While now is the absolutely worst time to have higher inflation which would further squeeze many who have lost their jobs, the April Eurozone CPI rose .4% y/o/y, above the estimate of up .1% and the core rate rose .9% y/o/y, above the forecast of up .7%. These are still low levels but again, this exposes the idiocy of wanting higher inflation that would just crush the livelihood of the average person, especially now.

Bottom line on all the economic data we’re seeing in Europe and the US, the March and April data is basically irrelevant in that we know what caused it. It’s like banging your head against the wall and then having a headache. We don’t need to analyze why you have a headache, only how long it lasts. In China and other parts of Asia as things are still mostly open, the domestic data is more relevant and in coming months in the US and Europe it will become important again as things reopen.