Global economy to suffer worst peacetime slump in 100 years, OECD says – as it happened
An OECD report forecasted that the global economy will contract 6% in 2020, and 7.6% if there is a second wave of Covid-19 infections. It said the pandemic has triggered the most severe peace-time recession in nearly a century
The news caused European stocks to flip flop, with most indices ending up in negative territory after a relatively strong start to the session
Bank of England governor Andrew Bailey later said at a private event thatthere will be elements of a faster-than-usual economic recovery as the government lifts Covid-19 restrictions that that we are seeing elements of that recovery starting already
US consumer prices fell for the third straight month. CPI dipped 0.1% month on month in May, worse than economist forecasts for a flat reading
All eyes are now turning to the US Fed as the central bank plans to release its first set of economic forecasts since the Covid-19 pandemic took hold
That’s all from us today. We’ll be back again tomorrow morning. Thanks for reading and stay safe –KM
Wall Street has edged higher at the market open, helping the Nasdaq hit a record high(remember it hit 10,000 for the first time ever yesterday, so it wasn’t a huge feat to beat that level again today)
Nasdaq opened up 0.6% at 10,014 points
Dow opened 0.1% higher at 27,244 points
S&P 500 opened 0.1% higher at 3,211 points
Neil MacKinnon, global macro strategist at VTB Capital, says the US Fed is unlikely to forecast GDP growth above 2.5% for 2021 when it releases projections later today:
It is unlikely that the FOMC’s GDP forecast will be much higher than 2.5%, as the Fed can explain such a modest increase in the light of a wide output gap that will take time to recover.
A much stronger GDP growth forecast would certainly come to the attention of bond investors, who might think that this would mean a faster-than-expected normalisation of policy.
It would also be a surprise if the Fed deviated much from its recent messages to the market of being there to provide policy support for the economy.
Fed Chair Powell might also want to again send the message that accommodative policy will be in place for some time – i.e. dovish forward guidance. The potential upset today is that Fed Chair Powell sends an inadvertent hawkish message and/or highlights concerns with new highs in equity markets.
More comments being reported from Andrew Bailey:
After the doom and gloom of the OECD report, Bailey has said that there will be elements of a faster-than-usual economic recovery as the government lifts Covid-19 restrictions. He adds that we are seeing elements of that recovery starting already.
However, there will be a greater degree of natural caution by people after lockdown ends, and he warns that we don’t know how much economic scarring there will be.
Bank of England governor Andrew Bailey is speaking at a private event as part of the World Economic Forums’ “Great Reset Dialogue” series.
Thankfully Reuters has a view of what’s being said.
Bank of England Governor Andrew Bailey. Photograph: Reuters
Bailey, like almost every BoE official in recent months, has insisted that the financial sector is much more resilient than before the financial crisis and that banks can aid the recovery from Covid-19 by continuing to lend.
However, Bailey will they have to consider some reform of the ‘non-bank sector of finance’ after the Covid-19 crisis (though no detail yet over what exactly the issues or or what the potential solutions might be).
US CPI dipped 0.1% month on month in May, worse than economist forecasts for a flat reading.
That’s the third straight month of declines and follows a 0.8% fall in April which was the biggest decline on record since December 2008.
On an annual basis, consumer prices actually rose 0.1% but that was still worse than predictions for 0.2%.
Worse than Italy. Worse than Spain. Britain has already had more deaths from Covid-19 than any other European country. Now it faces the possibility of a second embarrassment: the deepest recession of any nation in the developed world, writes our economics editor Larry Elliott.
Even so, the OECD’s findings make grim reading. It thinks the economy will contract by 11.5% in the event of a single hit and by 14% if the virus returns later in the year. The 37-member thinktank says one is no more likely than the other.
So why is the UK set to do much worse than Germany, which expects output to contract by 6.6% in the event of a single hit?
One factor identified by the OECD is the importance of the service sector to the UK economy. Trade, tourism, real estate and hospitality together make up a sizeable chunk of gross domestic products and all have been hard hit by the lockdown.
You can read Larry’s full analysis here:
Stocks are on a bit of a rollercoaster ride today, with the FTSE 100 edging back into positive territory to trade up 0.1%
US futures are also showing some green shoots just a little over an hour before Wall Street opens for trading.
Oil prices are continuing their downward slide, with Brent crude down 1.8% and WTI slumping 2.2%.
While oil prices had climbed since the initial OPEC+ production cut agreement in April (as well as the recent easing of lockdowns) the long road to recovery from Covid-19 appears to weighing on the minds of investors.
Cailin Birch, global economist at The Economist Intelligence Unit, explains:
The global economy is still in a precarious position. The dip in oil prices in recent days most likely reflects the end of the price boost that came from the initial economic re-opening.
The global economy is now settling in for a long, slow recovery process, which we only expect to pick up in late 2021, assuming a Covid-19 vaccine becomes available then.
Global energy consumption will remain depressed compared with the start of 2020, particularly as demand for travel and hospitality services stays weak. This will require continued production restraint from OPEC+ partners in order to stabilise oil prices around their current level of US$40/b.
Boris Johnson has further quashed any hopes of pubs and the wide hospitality industry re-opening this month, saying at PMQ’s that the government was sticking to its plan to hold out until at least 4 July.
Johnson said that guidance for the hospitality industry was being development but there were still risks, and that the government did not want to se a mass of people who could further spread the coronavirus.
The US dollar is trading at three-month lows ahead of the conclusion of the US Fed meeting later today.
A chart showing the US dollar falling to a three month low. Photograph: Tail1/Refinitiv
While we’re not expecting any change to interest rates, all eyes are turning to economic projections, particularly in light of the surprise drop in unemployment in May.
Michael Hewson, chief market analyst at CMC Markets UK, says:
The economic projections will be particularly instructive in the context of whether Fed policymakers believe a v-shaped recovery is likely, and whether they think the worst is behind the US economy.
We’ve already seen more details this week of the Main Street Lending program, however it will be on how the Fed intends to manage the recovery process that will be of most interest.
Prime Minister Boris Johnson is currently facing Labour leader Kier Starmer at PMQs.
You can follow those proceedings at our politics live blog here:
Speaking of Germany, there are reports that the country’s finance minister Olaf Scholz is mulling a larger-than-expected extra budget that will involved taking on €50bn worth of fresh debt to fund a coronavirus stimulus package.
The cabinet is planning to pass a second supplementary budget on 17 June, according to Reuters, which is citing an unnamed senior official with knowledge of the discussions.
It would be on top of a supplementary budget worth €156bn agreed in March, and would bring the federal government’s overall net new borrowing beyond €200bn this year.
