French consumers decidedly downbeat about outlook

Chris Scicluna
Emily Nicol

Overview:
After yesterday’s solid start to the week for global equities, which saw decent gains in all major markets, today’s picture is somewhat uneven. But while crude oil prices have continued to fall (WTI for June delivery is now below $11), S&P500 futures have reversed earlier losses. Meanwhile, ahead of tomorrow’s Japanese holiday, the Topix closed up just 0.1% on the day, even after the number of new confirmed covid-19 cases in Tokyo dropped again to just 39, the lowest since March, and the latest national labour market data (see below) revealed a modest rise in unemployment last month before the announcement of the national state of emergency. Elsewhere in Asia, most of the region’s stock markets recorded a mix of modest gains and losses, a picture that has been matched so far this morning in Europe.

In the bond markets, USTs are only a touch firmer off the back of the lower oil price. In Japan, after yesterday’s commitment to buy JGBs without limit if necessary, and having also widened the indicative buying ranges for these securities next month, the BoJ increased its purchases of bonds of maturities of 1-10Y in its latest operations. Nevertheless, JGBs were largely little changed across the curve today. And, in the euro area, where governments in France, Spain and Greece should today set out their lockdown exit strategies and a French household survey gave some mixed messages about sentiment, most govvies have similarly seen limited moves. But BTPs continue to outperform, with 10Y yields down a further 5bps or so to below 1.70%, now 55bps lower than last week’s peak. In the UK, where the exit strategy will have to wait a while yet, and another business survey revealed an extremely pessimistic assessment of the outlook (see below), Gilts are so far little changed.

Japan:
Japan’s latest labour market figures, published overnight, gave a hint as to what might come over the next few months after the country entered a (rather loose) state of emergency. The March data showed some early signs of deterioration in conditions, with the number of people in employment falling for the second month in three and by 110k. While monthly adjustments are often volatile, that left the number of those in employment up just 90k compared with a year earlier, the lowest annual increase since Abe took office in 2012. And it was largely thanks to a jump in those employed in the medical sector (up 400k on a year earlier) that this increase wasn’t smaller. Indeed, those employed in manufacturing, accommodation and eating services, and education fell back as firms scaled back significantly those employed on non-regular contracts (down 260k, -1.2%Y/Y).

So, the number of redundancies rose more than 20%Y/Y, to leave the number of workers unemployed up 60k compared with a year earlier and the jobless rate up 0.1ppt to 2.5%. This seems bound to rise significantly further over coming months as business scale back further their workforces as the national state of emergency came into force. Indeed, the flash composite PMI suggested that firms cut jobs in April at the fastest pace since 2011. And today’s official figures showed that the number of job offers in March fell to their lowest since mid-2015, leaving the job-to-applicant ratio down from 1.45x to 1.39x.

Nevertheless, the government’s employment adjustment subsidy scheme – whereby furloughed workers can currently receive at least 60% of their regular pay with the government bearing up to 90% of the cost – should contain to some extent the rise in joblessness. Indeed, the government plans to extend that scheme to allow workers at small companies to continue to receive 100% of pay if state or local governments ask them to temporarily halt activity. But the peak unemployment rate during the global financial crisis, of 5.5%, might yet be surpassed over coming months.

Euro area:
This morning’s French consumer confidence survey inevitably reported a marked deterioration in sentiment over the past month (the survey was conducted from 27 March to 18 April). Indeed, the drop of 8pts in the headline index from March was the sharpest on the series, dating back 48 years. Nevertheless, at 95, it was still well above expectations and merely a fourteen-month low. That might seem encouraging. However, the detail of the survey suggested that sentiment only held up because households appreciated that their standard of living and financial situation over the past year was actually a lot better than they had previously thought. In contrast, the forward-looking indicators deteriorated markedly. Among other things, the survey measure of consumers’ willingness to make major purchases over the coming twelve months fell by a record amount to a series low (-59). And households' assessment of their future financial situation also posted a decline of record magnitude, albeit falling merely to the lowest level since May 2014.

This is hardly surprising given yesterday’s figures showed a record jump in the number of registered job seekers in March since the series began in the mid-1990s. Indeed, the sharp rise in the number looking for work – up by 246.1k (7.1%) to 3.7mn, the highest since October 2017 – was driven predominantly by temporary workers who are not covered by the government’s furlough scheme. This compares to a previous high monthly increase of 77.3k during the height of the global financial crisis. And today’s weekly update on labour market conditions is likely to report a further notable rise in the number of employees now registered under the furlough scheme from the whopping 10.8mn reported a week ago.

UK:
Overnight brought the latest Lloyds business barometer, which tallying with last week’s flash PMIs predictably reported a marked and widespread deterioration in UK business confidence in April. Indeed, the headline indicator fell 38ppts to -32%, the lowest reading since the height of the global financial crisis. While firms were understandably more pessimistic about current conditions than they were a month ago, perhaps oddly the relevant index remained above the trough during the Lehman crisis.

However, firms were significantly more downbeat about trading prospects over the coming twelve months, with the survey’s relevant component falling to a record low (-25%), some way below the GFC trough. Roughly three-quarters of respondent firms flagged a negative impact from the coronavirus crisis, with more than a third of those reporting a drop in demand of more than 50%. Against this backdrop, firms hiring intentions for the year ahead fell to their lowest in nine years, with more than a third of firms anticipating a reduction in their workforce and a little less than one third expecting a pay freeze.

Also of interest today will be the release of the CBI’s distributive trades survey for April. Following the record decline in last week’s official March retail sales figures, the survey is expected to show that spending plummeted further at the start of Q2, as the lockdown disrupted activity and weighed even more heavily on demand. Indeed, we would expect to see the headline sales index fall to a record low, below the -55 trough seen during the global financial crisis.

US:
In the US, ahead of tomorrow’s estimate of Q1 GDP, today’s economic data will bring the advance goods trade and inventories figures for March, which are set to illustrate the significant hit to activity at the of the first quarter. This afternoon will also bring the Conference Board’s consumer confidence indices for April, which will undoubtedly point to a more marked deterioration at the start of Q2.

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