As countries get ready to reopen, this is what to anticipate.

If Words Don’t Work
May 21 (
King World News) –
Peter Boockvar: 
If the (Fed’s) words don’t work in keeping rates low, “A few participants also noted that the balance sheet could be used to reinforce the committee’s forward guidance regarding the path of the federal funds rate through Federal Reserve purchases of Treasury securities on a scale necessary to keep Treasury yields at short to medium maturities capped at specified levels for a period of time.” This is otherwise known as yield curve control. It was done in the US in the early 1940’s and currently is being conducted in Japan.

I’ve said this before but will again now that these discussions are taking place again. Forward guidance doesn’t encourage quicker economic growth, it inhibits it. The whole purpose of stimulus, whether monetary or fiscal, is to encourage economic behavior to happen now instead of later. Telling us all that rates will stay low for a while just has us waiting until later because there is no rush. Those that believe in this policy seem to be intent on repeating the monetary mistakes of the BoJ and ECB where the evidence is available to us all.

The bottom line is as we know. Things are improving as we reopen but there is still a long road ahead with the recovery. “Encouragement comes from the survey indicating that the rate of economic collapse seems to have peaked in April. In the absense of a 2nd wave of COVID-19 infections, the decline should moderate further in coming months as measures taken to contain the virus are steadily lifted.” 

The caveat: “However, the sheer scale of the current downturn and associated job losses, and the fact that some restrictions will need to stay in place until an effective treatment or vaccine are found, highlights how a full recovery is unlikely to be swift.” We also know that even after a vaccine, consumers are likely to save more and spend less and companies will likely try to do more with less in terms of hiring plans and balance sheet will be front of mind.

Billionaire Eric Sprott Buying
To find out which company billionaire Eric Sprott just bought a 12% stake in click here.

…In the Eurozone, the services component for May jumped to 28.7 from a truly awful 12 print in April. The manufacturing side rose to 39.5 from 33.4. Markit said “All eurozone countries eased their COVID-19 containment measures to some extent in May, helping to moderate the overall rate of economic decline.” What comes next though is the worry, “An additional concern is that demand is likely to remain extremely weak for a prolonged period, putting further pressure on companies to make more aggressive job cuts as government job retention schemes expire.”

As for the UK, its composite index rebounded to 28.9 from 13.8 with manufacturing back above 40 and the services component going to 27.8 from 13.4. “An improvement in business confidence about the year ahead for a 2nd successive month is welcome news, and the easing of restrictions in coming months should help boost activity in some sectors as we head into the summer. However, the UK looks set to see a frustratingly slow recovery, given the likely slower pace of opening up the economy relative to other countries which have seen fewer COVID-19 cases.”

Email From A KWN Reader
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