BMO Capital Markets Economics | A Weekly Financial Digest May 29, 2020
Focus
Feature Article The Consumer: Savings Grace
Our Thoughts The Three-Month Recession The Multi-Year Recovery U.S. Recovery Looks to Be Slower Going Governor Poloz Passing the Torch Rental Market Reshaped Overnight Will the ECB Give It Another Go? China: Still Exercising Fiscal Restraint
BMO Capital Markets Economics economics.bmo.com Please refer to the end of the document for important disclosures Our Thoughts
The Three-Month Recession Douglas Porter, CFA, Evidence is building that activity in a variety of sectors is crawling off the floor in Chief Economist North America and Europe from the depths of April. However, ongoing job losses [email protected] in May—and we’ll get the official word on that next Friday—as well as declining production in some key industries suggest that the overall economy may only have hit . bottom this month. But with reopenings gradually proceeding about as well as could have been reasonably hoped, attention has turned almost full-bore to the strength, scope, and quality of the recovery. Effectively, the steep and deep downdraft is over, which means that technically the recession is also over—strictly in the official definition of recession. As a reminder, a recession is officially measured as lasting from when the economy peaks (February) to when it bottoms (sometime between mid-April and mid-May, depending on the major sector). Even at the longest measure, this means that the downturn portion lasted three months (and possibly as short as two months, but we wouldn’t dare be optimistic on the bigger picture for the current month when we are calling for an 8 million U.S. job decline in May). To put the downturn in perspective, the average post-war U.S. recession has lasted 11 months (and 18 months for the 2008/09 version). The shortest was 6 months for the mini-recession in 1980. So, this episode breaks all records for speed. That’s the good news. The bad news is that it also breaks all the post-war records for the deepest downturn. (When the shutdowns first began in March, we called for a short, sharp shock to the economy, but didn’t quite reckon on just how sharp.) The U.S. doesn’t produce monthly GDP but, on a quarterly basis, it now looks like the combined Q1/Q2 drop will total an unannualized peak-to-trough drop of 13%. That compares with a top-to-bottom decline of 4% over six quarters in 2008/09, previously the deepest setback in the post-war era. Canada does produce monthly figures, and they lay bare the true peak-to-trough move (the quarterly data masks some of the move). StatsCan made it official today that March GDP alone fell 7.2% (less bad than the flash estimate of a 9% plunge), and is now estimating another 11% drop in April. That works out to a massive two-month drop of more than 17%. In the 2008/09 period, the peak-to-trough descent on the monthly figures bottomed out at just shy of 5%. As a sidebar, Canada’s official quarterly GDP decline also came in lighter than initially guesstimated at -8.2% (-10% flash), which put it right in the middle of the G7 pack. Japan was the least hard-hit at down 3.4%, while France was at the other end, walloped with a 19.7% drop in Q1. Almost all major economies are looking at something on the order of a 40% annualized setback in Q2 (or down 12% in non- annualized terms), before recoveries begin in Q3. Note that policy measures are still pouring in to support the recovery, with each of China, Japan and the EU announcing big fiscal packages this week. Curiously, the latter two both unveiled measures that totalled US$1.1 trillion, a very serious effort. The key point of all these figures is that the recession portion of this cycle was remarkably brief (most likely). But, due to the extraordinarily deep dive, the recovery could also be one of the longest on record, for a variety of reasons. The single biggest reason why it will take so long to get back to 100% is simply the massive hole that has
May 29, 2020 | Page 2 of 20 Our Thoughts
been dug. The second biggest is the heavy overhang of uncertainty on the health side, and how precisely people and business will adapt and deal with a return to work. We have consistently been among the more upbeat, or less negative, on the prospects for a second-half recovery, and are mildly encouraged by initial developments. Still, we have slightly trimmed our U.S. GDP estimate for 2020, to a drop of 5.5% from the prior estimate of a 5% decline. Some of that reflects this week’s downward revision to Q1 (to -5%), as well as additional reported job losses seen through May. For Canada, we are maintaining our 2020 GDP call at a decline of 6%, with a bit less weakness in the early stages of the downdraft, but also accordingly a somewhat less snappy rebound in the initial phase of the recovery.
We would be remiss to not give a serious tip of the hat to outgoing Bank of Canada Governor Stephen Poloz, who will step aside ahead of next Wednesday’s policy meeting. There is little anticipation of any significant announcements from that event itself, as the mid-July meeting will include an MPR and mark Tiff Macklem’s first decision fully at the helm. Friday’s jobs data on both sides of the border for May will instead command market attention next week, with auto sales and the ISMs for the same month helping to set the stage. But while the BoC will be overshadowed, let’s keep a bit of the spotlight on the outgoing Governor. After all, in his seven-year term, Mr. Poloz had to deal with a massive oil shock (which saw WTI prices fall more than 70% from 2014-16), a localized housing bubble, normalizing policy, and finishing with a global pandemic and arguably the biggest economic challenge since WWII. And doing it all with a positive attitude, even amid some loud armchair policymaking from those who shall remain nameless. Ben details some of his award-winning metaphors below—let’s just say “spaghetti sauce” will go down in monetary policy history—which always made his speeches highly readable. Goodbye to Mr. Poloz, and good luck to Mr. Macklem.
The Multi-Year Recovery Michael Gregory, CFA, With all states and provinces now in various degrees of reopening, the recoveries Deputy Chief Economist from the quick and very painful recessions are beginning. Beyond what should be [email protected] stellar growth rates during the summer months owing to “base effects” (a business going from 20% to 60% of pre-pandemic activity will register sales growth of 200%), . it’s unclear what kind of a recovery we’re going to experience. Our Douglas Porter characterizes it as a fast elevator ride down and a slow stair climb up, and reflecting those stairs (and their inconsistent risers and treads to continue the metaphor), we judge that both the U.S. and Canadian economies could set new records for how long the recuperation period lasts to recover all the ground lost to the pandemic. It could take longer than America’s record-long (2-year) recovery from the Great Recession. Turning to the staircase… COVID-19’s evolution: We’re not factoring in any negative economic impacts from a possible major second wave or minor local outbreaks, but in the absence of a vaccine we suspect business and consumer confidence are unlikely to rebound to the point where lack of confidence is no longer an economic headwind (particularly for capex and big-ticket consumer purchases). Even if allowed to, surveys suggest that some consumers will simply opt to avoid crowds, and their associated outlays.
May 29, 2020 | Page 3 of 20 Our Thoughts
Unemployment: Not everyone who was laid-off or furloughed will get their jobs back, creating a spending restraint and applying another damper on consumer confidence. Apart from some firms going out of business and an inadequate rebound in business confidence (mentioned above), post-recession hiring could be dampened by some firms permanently paring personnel to drive cost savings and efficiencies. Meanwhile, many industries will be facing operating constraints (such as physical distancing rules) and, thus, hiring constraints. Physical distancing: Across jurisdictions and industries, the transition from lockdowns and shutdowns to “business as usual” will vary, mostly because of lingering physical distancing rules and other public health protocols. Some industries facing the greatest challenge to completely recover include: (1) transportation (particularly airlines, public transit and cruise lines), (2) accommodation, (3) arts, entertainment and recreation, (4) food services and drinking places, and (5) non-food retail trade. Private-sector debt burdens: For businesses, with many of the government measures to counter the pandemic involving a loan, in which some or all of it might not be forgiven, and all of the central bank measures involving asset purchases to facilitate the credit creation process, the legacy of these recessions is destined to be larger debt burdens among businesses both big and small. At a minimum, increased debt service payments, even assuming interest rates remain very low, should act as a mild constraint on business outlays (hiring and capex). U.S./China Trade War: Before the pandemic, with a Phase One trade deal signed, Phase Two talks ongoing, and China making major commitments to buy U.S. exports, the economic drag from the U.S./China trade war was diminishing with the U.S. poised to get a growth boost from the extra exports. Currently, with the Administration blaming China for the pandemic’s economic devastation, and trade tensions intensifying, the trade war looks to continue acting as a drag on growth. Global demand: Although oil prices have rebounded a bit, with a lingering significant imbalance between global supply (despite OPEC-plus cuts) and global demand (dampened by the pandemic), the projected profile for oil prices still looks to be problematic for the industry (more of an economic hit for Canada than the U.S.). Elsewhere, as airlines around the world grapple with reduced passenger volumes, dampened global demand for new aircraft will weigh on Boeing (already reeling from the 737 MAX production halt). Fiscal consolidation: Government budget deficits surged massively, as measures were quickly introduced to address the health and economic crises caused by the pandemic. As businesses reopen and workers get rehired, many of these measures are scheduled to end while others will be modified to better target their benefits. Looking ahead, with much larger public sector debt burdens and higher run rates for budget deficits, some efforts at fiscal consolidation will likely occur, particularly after the next elections. The above, in addition to other constraints, will not only delay complete economic recoveries but also ensure that disinflationary output gaps persist well past next year. This suggests that any major policy shifts by the Fed and Bank of Canada toward monetary restraint (like rate hikes) are unlikely something households, businesses and government will have to worry about for a while.
May 29, 2020 | Page 4 of 20 Our Thoughts
U.S. Recovery Looks to Be Slower Going Sal Guatieri, Though in the early stages of economic reopening, the data hint at a somewhat Senior Economist slower recovery and weaker labour market than previously thought. As a result, [email protected] we lowered our real GDP growth call for this year by half a percentage point to -5.5%, while still eyeing a 5% bounce in 2021. As well, with continued jobless claims still . high (even excluding nearly 8 million Pandemic Unemployment Assistance filings), we now expect the jobless rate to peak at 20% (instead of 15%) in May, before falling to just over 9% at year-end and to almost 6% in late 2021. Prior to the May 18 cut- off date in its survey, the Fed’s Beige Book suggested employment was still shrinking and consumers were holding back despite many states easing restrictions on non- essential services. Businesses remained sour about prospects for recovery, suggesting companies will be slow to bring back workers and invest in equipment and facilities. Some workers are reluctant to return, as well, citing infection fears, childcare issues, and support from expanded jobless benefits. We are getting a better read on the depth of the economy’s historic dive in the second quarter. Personal spending tumbled largely as expected by 13.6% in April, with all major groups getting sliced, led by epic declines in hospitality and recreation. However, a massive spike in personal income (10.5%), as government assistance payments swamped a plunge in wages, drove the savings rate to a record-high of 33%. This should provide some support to spending, even as the government support tails off in coming months. On the business side, while core capital goods orders fell a less-than-expected 5.8% in April, a 12.6% decline in “control” capital goods shipments (led by aircraft and autos) suggests an epic plunge in Q2 business spending. The data for housing markets is more nuanced, which counts as good news these days. Pending home sales plunged 22% in April after a similar slide in March, contrasting with a (frankly bizarre) modest increase in new home sales after a 14% drop the prior month. Mortgage applications for purchases have fully unwound their previous 35% plunge from mid-March to mid-April. This signals an upturn in May home sales, though some of the increase in applications likely reflected tighter loan standards (spurring multiple applications) and perhaps some relocation buying due to health concerns (spurring a shift from dense downtown areas to the suburbs and from high-rise to low-rise units). Redfin Corp, a real estate brokerage, reported a nice bounce in home sales to mid-May. Overall, the economic data still point to a 40% annualized decline in Q2 real GDP after a revised 5.0% contraction in Q1 (was -4.8%). The coming week’s dataflow, in particular May employment and the ISMs, will reveal whether the economic hole is even deeper and the climb out slower than we expect, or whether initial green shoots will start to blossom into a more robust expansion. This current unique crisis marks the first time that the economy was purposely pushed into recession (in this case to control the outbreak of COVID-19), and also the first time that economists know with relative precision when the downturn will end (around now given the easing of restrictions). What we still don’t know, and is frankly unknowable given the lack of a precedent and the uncertain path of the outbreak, is how much of the economy (i.e., businesses) will survive to carry the expansion forward? But the answer should become clearer in the weeks ahead.
May 29, 2020 | Page 5 of 20 Our Thoughts
Governor Poloz Passing the Torch Benjamin Reitzes, There’s some additional intrigue surrounding the June 3rd BoC policy announcement Canadian Rates & Macro as it will be the first with Governor Macklem in charge. Over the past couple of Strategist [email protected] months, the Poloz-led BoC has cut rates to the effective lower bound (25 bps), started buying a variety of assets, and committed to doing whatever is necessary to support . the economy. Given the upbeat tone from Poloz of late, we’d generally expect little to come from this meeting. However, with a new man in the big seat, there’s the potential for a surprise. With the various asset purchase programs having their intended effect, it doesn’t look like there will be any changes on that front at this time. Indeed, the corporate bond buying has just started and the BoC will be less than a month into their provincial bond-buying program. Other programs have seen declining interest, with the BA program seeing no take-up over the past month. So what’s left for the BoC? One option is forward guidance. This was last used by the Bank in 2009, when they provided a calendar-based commitment (rates on hold for one year), subject to the outlook for inflation. Note that this was before Mr. Macklem was the Senior Deputy Governor under Carney; he was working in the Department of Finance at the time. However, a speech early in his tenure as Sr. Dep. Gov. noted the effectiveness of the various measures undertaken in the GFC, including forward guidance. Governor Poloz wasn’t a huge fan of forward guidance in general, though he maintained it was in the tool box. If we get something from the BoC, forward guidance in some shape will likely be it, though it will be subject to the inflation outlook given the BoC’s mandate. Beyond forward guidance, there are some options left for the BoC. They can upsize any of their current buying programs, or move further out the curve for provincial and/or corporate bonds. Yield curve control is also an option, but with yields sitting at or near record lows, that’s a tool that will remain in the box for now. Perhaps when/ if the recovery really picks up steam and pushes yields higher that will become a more attractive option. Negative rates are a last resort, so that possibility is a long way off still. Perhaps the most anticipated aspect of next week’s policy announcement is whether there’s any change in tone from the newly installed Governor. We’ve heard very little from Mr. Macklem beyond the introductory press conference. Note that Deputy Governor Gravelle delivers the post-announcement economic update on Thursday. Key Takeaway: Expectations are muted for Governor Macklem’s first meeting in charge, but we’ll be watching for any changes in tone. For now, look for the BoC to stand pat, with some chance of opting for forward guidance given the anticipated lengthy recovery ahead.
As a farewell to Governor Poloz, we’ve compiled a list of our favourite quotes: On the post-GFC recovery… I sometimes use a spaghetti-sauce model to help explain this. When the bubble burst in 2008, we were left with a crater, which is where we now find ourselves. If you look carefully at a pot of simmering spaghetti sauce, under every bubble there is a crater that’s equal in size. So, a 7-year bubble, a 7-year crater. Central banks have been filling that crater with liquidity, so we can row our boats across it. We need to make sure we’re getting to shore and not just hitting a rock. But
May 29, 2020 | Page 6 of 20 Our Thoughts
when we get to the other side, when we get home and can climb out of the crater, central banks can gradually reduce the rate at which they add liquidity.” Note that he used this metaphor but with water just this week on his videoconference with the University of Alberta. On the C$… “As I’ve said before, there is a loose but predictable relationship between oil prices and our currency—like a dog and its master, when connected by one of those leashes that stretch and rewind.” On recent policy measures… “No one has ever criticized a firefighter for using too much water.” To explain a terms-of-trade shock… ”You’ve got a box of old hockey cards in the basement, right? Everybody does. What if, in that box, you’ve got a Chris Kunitz card from his rookie days. Hey, now that the Regina native is an Olympic gold medallist and two-time Stanley Cup winner, that card is suddenly worth a lot—and you have the incentive you need to go dig it out of the basement.” On the outlook for central banking… ”As central bankers, here in Canada and globally, we are in new territory. It brings to mind the sailors of another era who were driven far off course by a nasty storm. When things calmed, they found themselves in the southern hemisphere. Suddenly the navigational chart that they relied on—the night sky—was completely different.” On the BoC consistently hitting its inflation target… ”Like navigating a ship, we have had to adjust to the currents around us and to bouts of foul weather. Some of the challenges are minor, calling for temporary adjustments in course or speed. Others may involve a major detour. In worst-case scenarios, there are risks of running aground, or even capsizing. In all cases, we have to anticipate as well as react.”
Rental Market Reshaped Overnight Robert Kavcic, Anecdotal evidence is starting to emerge that rents are under pressure in major Senior Economist Canadian cities, with some local Toronto listing sites pointing to 5% declines in average [email protected] list prices in April. This marks a sudden departure from recent years, where rent growth was running well in excess of inflation, and policymakers were desperately trying . to contain prices and make supply available. Here are a few reasons why the rental market might be pressured going forward: Job market: Most of the job losses (and expected persistent losses) are concentrated at the lower-end of the pay scale—think bars/restaurants, tourism and other service industries. In fact, the industries with double-digit jobless rate increases from a year ago, as of April, have been trade, accommodation & food services, culture & recreation and other services—these also carry among the lowest average wages. Investment dynamics: A lot of rental stock in recent years came from individual investment ownership, rather than purpose-built development. Units in the biggest cities, in general, were not cash-flow positive with 20% down initially, rather banking on price appreciation or a few years of rent growth. For example, apartment cap rates in Toronto and Vancouver compressed to around 3%, which is too thin even in a record-low mortgage rate environment. If rent growth ceases and price expectations
May 29, 2020 | Page 7 of 20 Our Thoughts
weaken, many investors could be holding units that no longer make much economic sense. If this forces enough units back onto the market, prices will struggle. Short-term rentals: This segment was a sort of loophole in the investment market. That is, investors could churn out much higher cap rates than in the long-term rental market, better justifying purchase prices. Now, with this segment (i.e., Airbnb) in limbo with travel restrictions, it will likely push units back onto the long-term market out of necessity (depressing rents) or onto the resale market (pressuring prices). Local policymakers have been trying to encourage this with various rules, but necessity will make this shift much quicker. Immigration: International inflows have been a massive source of rental demand but, while Canada is sticking to its targets and still processing applications, the actual number of entrants certainly appears at risk. This would be especially true in the nonpermanent resident category (think students and temporary workers), which has been a major driver of rental demand. All told, in almost precisely opposite fashion to the recent policy-induced (foreign buyer taxes, mortgage rules, etc.) housing corrections that weighed heaviest on prices at the higher end of the resale market, the COVID shock could weigh heavier at the lower end and in the rental (investment) market. Supply shortages and rent inflation that policymakers have been relentlessly battling for years could be gone overnight.
Will the ECB Give It Another Go? Jennifer Lee, Will they or won’t they make another big announcement on June 4th? After all, at the Senior Economist ECB’s last monetary policy meeting (on April 30th), President Lagarde had introduced [email protected] PELTROS, which is another series of non-targeted pandemic emergency longer-term refinancing operations to kick off in May, helping the €750 bln Pandemic Emergency . Purchase Program (PEPP) in the battle for economic survival against the coronavirus. And remember, members were “fully prepared” to increase the PEPP or make some changes to it, “by as much as necessary and for as long as needed”. This is in addition to the other €120 bln “temporary envelope” that could be used to buy bonds during the year, and the Public Sector Purchase Programme (PSPP), which allows for €20 bln of monthly bond-buys. Meantime, there’s the other possible knight in shining armour galloping in. The European Commission’s proposed €750 bln EU Recovery Fund is larger than the €500 bln that made the initial round of talks. It appeals to both Germany and France (by having €500 bln available for grants to hard-hit economies, especially Italy and Spain), as well as the Frugal Four (by having €250 bln available for loans). So everyone is happy! Or are they? The hard part begins, convincing every single EU country to agree to this, and that could take weeks. All in, the combined fiscal and monetary power may be enough. But what if it isn’t? Can more be done? The ECB could always step in if needed. But things have gotten a little complicated. In a nutshell, Germany’s constitutional court questioned the legality of the ECB’s bond- buying program (not the PEPP) and it wants proof from the German government that appropriate measures were taken to ensure that the effects of the bond purchases do not outweigh other policy objectives. The German court is not telling the ECB what to do; but, it is telling the Bundesbank what to do, and they have until roughly August
May 29, 2020 | Page 8 of 20 Our Thoughts
5th to do it. Although the ECB has firmly stood its ground (“we are undeterred”, and “we are an independent institution”), the Bundesbank is in a very difficult position. As Executive Board member Isabel Schnabel said recently, “We have to avoid a situation in which one national central bank cannot participate in our asset purchase programmes.” In other words, if the ECB waits, it may not be able to act if it is stuck in a messy court situation. The ECB’s new growth forecasts will also be released on June 4th and it is highly likely that they will be revised down. President Lagarde essentially said as much on May 27th. She warned that the projected 2020 GDP decline of 5%-to-12% was already dated and it would more likely be an 8%-to-12% plunge, which is sandwiched between the ECB’s “medium” and “severe” scenarios. Such projections would warrant an increase in the PEPP by another €200 bln or €500 bln; or, perhaps, an increase to the PSPP’s ceiling. I’d say the latter option is less likely as it would really rile up the German courts. Bottom Line: Warning that Europe could see the “severe” scenario play out would justify more changes to the ECB’s current policies while, at the same time, showing its independence as a central bank by not being influenced by German laws. Besides, the extra room for purchases may not be used if economic activity rebounds faster than expected. But like an insurance policy, it doesn’t hurt for the ECB to have a little extra set aside, while it still can.
China: Still Exercising Fiscal Restraint Art Woo, Prime Minister Li Keqiang confirmed this week that the government is introducing Senior Economist an additional RMB4.0 trillion in fiscal stimulus. Though this number seems large [email protected] on the surface, it equates to 4.0% of 2019 GDP. As a comparison, the same amount accounted for a hefty 12.5% of GDP when the Great Recession erupted in 2008. . Beyond its relatively modest size, the new measures announced largely revolve around cutting costs for businesses (taxes, utilities, etc.) and are unlikely to quickly re-energize growth. Put another way, they will not have a big fiscal multiplier effect like the swath of large-scale, credit-intensive infrastructure projects (e.g., subways, expressways, airports, etc.) that were relied on heavily during the past decade to jumpstart the economy. Note that Beijing has not abandoned infrastructure altogether but the new projects are focused on urban gentrification, the environment and promoting innovation (such as next generation information networks). Key Takeaway: Beijing remains confident that its economy is quickly getting back on track, which will also allow it to preserve valuable fiscal and monetary space. For the record, we are forecasting China’s real GDP to grow 1% in 2020 and then rebound to 8% in 2021.
May 29, 2020 | Page 9 of 20 Recap
Indications of stronger growth and a move toward price stability are good news for the economy.
Good News Bad News
Canada Conference Board’s Consumer Confidence Real GDP -8.2% a.r. (Q1)—but above expected Index +16.2 pts to 63.7 (May) . BoC Gov. Poloz: “the Bank has Monthly Real GDP -7.2% (Mar.); -11.0% (Apr. P)
tools available” to meet Current Account Deficit widened to $44.4 bln a.r. (Q1)
inflation target SEPH Employment -914,476 (Mar.) Building Permits -17.1% (Apr.)
Industrial Product Prices -2.3%; Raw Material Prices -13.4% (Apr.) Ottawa posted a budget deficit of $21.8 bln (Apr.- to-Mar.)—vs. $11.8 bln last year United States Personal Income +10.5% (Apr.)—record high Real Personal Spending plunges -13.2% (Apr.) . Tensions with China increase Continuing Claims -3,860k to 21,052k (May 16 Core PCE Deflator -0.4% (Apr.)—record low week)—first drop since Feb. Core Durable Goods Orders -5.8% (Apr.) . Chair Powell reaffirms Fed’s Initial Claims -323k to 2,123k (May 23 week) Real GDP revised down to -5.0% a.r. (Q1 P) strong commitment to battle Wholesale Inventories +0.4% (Apr. A) Pre-Tax Corporate Profits -8.5% y/y (Q1 P) crisis… New Home Sales +0.6% to 623,000 a.r. (Apr.) Goods Trade Deficit widened to $69.7 bln (Apr. A) . …as Beige Book shows no S&P Case-Shiller Home Prices +0.5% (Mar.) Retail Inventories -3.6% (Apr. A) signs of pick-up in business Conference Board’s Consumer Confidence Chicago Fed National Activity Index -16.74 (Apr.) activity Index +0.9 pts to 86.6 (May) Chicago PMI -3.1 pts to 32.3 (May)
Pending Home Sales -21.8% (Apr.)
FHFA Home Prices slowed to +0.1% (Mar.) U of M Consumer Sentiment revised lower to 72.3 (May) Japan Consumer Confidence +2.4 pts to 24.0 (May) Retail Sales -9.6% (Apr.) . Cabinet approves another Jobless Rate +0.1 ppts to 2.6% (Apr.) ¥117.1 trln relief package Industrial Production -9.1% (Apr. P) All-Industry Activity Index -3.8% (Mar.) Europe Euro Area—Private Sector Credit Euro Area—Consumer Prices slowed to +0.1% +8.3% y/y (Apr.) y/y (May P)—4-yr low . EU proposes €750 bln Euro Area—Economic Confidence +2.6 pts to Germany—Retail Sales -5.3% (Apr.) stimulus, in the form of grants 67.5 (May) France—Consumer Spending -20.2% (Apr.) and loans Germany—ifo Business Climate +5.3 pts to France—Consumer Confidence -2 pts to 93 (May) . ECB Pres. Lagarde warns of 79.5 (May) Italy—Real GDP revised down to -5.3% q/q (Q1) worst case scenario Germany—GfK Consumer Confidence +4.2 pts to Italy—Consumer Confidence -5.8 pts to -18.9 (June) . More stimulus expected at 94.3 (2 mths to May) next week’s ECB meeting France—Real GDP revised slightly higher to -5.3% q/q (Q1)—still big contraction France—Business Confidence +6 pts to 59 (May) Other India—Real GDP +3.1% y/y (Q1) Brazil—Real GDP -0.3% y/y (Q1) —above expected . Beijing pledges a 4 trln yuan relief package and approves Hong Kong security law . Hong Kong on verge of losing special trading status with U.S.
May 29, 2020 | Page 10 of 20 Feature
The Consumer: Savings Grace Chart 1 Savings Rates: Something’s Up Douglas Porter, CFA, Chief Economist (% of disposable income)
The behaviour of consumers is the critical element in Savings Rate 33% ensuring that the fledgling economic recovery sticks and 30 broadens. There will naturally be an initial snap-back in spending from the extreme spring lows as lockdowns lift, 20 stores reopen, and some people tentatively get out and Canada about again. But, a meatier recovery requires much more 13.8%¹ — than a partial bounce, and there are two big clouds of 10 U.S. uncertainty on that point: 1) The health uncertainty, and to what extent people are willing to return to some kind 0 of normality; and, 2) The income/economic uncertainty, 80 90 00 10 20 and to what extent people are able to spend again. Sources: BMO Economics, Haver Analytics ¹ Canada: Q2 forecast Clearly, the former issue separates this cycle from all . others in the post-war era, and is frankly unknowable (as Chart 2 per BoC Governor Poloz), but early indications are mildly Saving Bulges as Spending Plunges encouraging. We will instead focus on the latter, more traditional, issue; and on that front, we believe there are United States (US$ trlns : s.a.a.r.) some reasons for guarded optimism. 20 forecast First, a key feature of this traumatic event has been 18 the overwhelming policy response to the shutdown, Disposable both on the monetary and fiscal fronts. While there Income 16 is understandably deep concern about the rapid and savings massive deterioration in government finances, keep in 14 Personal mind that the other side of that deterioration is a heavy Outlays flow of funds to households and business to support incomes. As a result, spending has declined much more 12 18 19 20 21 dramatically than have incomes and, accordingly, savings Sources: BMO Economics, Haver Analytics rates have surged. .
It’s not unusual for savings to rise heading into an Chart 3 economic downturn, as spending usually weakens before Down the Mountain, But Still Elevated employment and incomes sag. But, this episode has seen United States (% of disposable income) an entirely different order of magnitude of events on that Savings Rate front (Chart 1). For instance, the U.S. savings rate blasted 36 up to 33% in April, its highest level in more than 60 years of data, and up from just under 8% in the year before the 30
virus. In a similar vein, Canada’s savings rate also nudged 24 up in Q1 at the start of the shutdowns, and we look for a bump to around 14% for Q2 from last year’s average of 18
less than 3%. 12 forecast 6 18 19 20 21 . Sources: BMO Economics, Haver Analytics
May 29, 2020 | Page 11 of 20 Feature
Digging a bit deeper into the U.S. figures (which, unlike Chart 4 Canada’s, are available on a monthly basis), the driver of Activity Off the Bottom… Just the savings surge is little mystery. While incomes have 2020 (7-day m.a. : as of May 21, 2020)¹ been heavily supported by policy measures, the bottom Changes in Retail and Recreation Mobility dropped out of spending in March and April (Chart 2). 25 Early indications suggest that spending likely bottomed 0 in April, and we could see a small comeback in spending France this month and almost certainly a bigger revival in June. -25 Germany On the other hand, incomes will reverse as one-time -50 payments pass, and will be held back by ongoing job U.K. -75 Italy losses in May; then, will later be constrained even as people return to work and income support measures -100 Mar 1 Mar 15 Mar 29 Apr 12 Apr 26 May 10 fade. (There is plenty of concern on that front, but we believe that policy will be adjusted in coming months ¹ (% of baseline : January 3-February 6 = 0) Sources: BMO Economics, Google to ensure that there will not be an “income cliff” as . measures expire.) Chart 5 Adding these factors together, the savings rate is Similar Activity Pattern in North America expected to come back down the mountain in the 2020 (7-day m.a. : as of May 21, 2020)¹ months ahead from the extreme conditions in April Changes in Retail and Recreation Mobility (Chart 3). However, we would make two observations 25 on this point: 1) the rate it settles at even 18 months out 0 is likely to be higher than pre-crisis levels; and, 2) the Japan -25 initial surge will not be “taken back”, say with a period of U.S. extremely low (or even negative) savings. This suggests -50 ‘Europe-4’ Canada that households as a whole will have built up a semi- Average² -75 permanent bump in savings balances as a result of the pandemic. One clear offset for household finances is the -100 Mar 1 Mar 15 Mar 29 Apr 12 Apr 26 May 10 roiling that financial markets went through in the spring, although note that the S&P 500 is now back above year- ¹ (% of baseline : January 3-February 6 = 0); ² Countries in Chart 4 Sources: BMO Economics, Google ago levels, while the TSX is down a moderate 7%. The . larger threat is from the potential for employment to remain heavily impacted for an extended period—but Chart 6 that brings us back full circle to the overall health of the Confidence Game recovery and the consumer. Conference Board Consumer Confidence
We are currently monitoring a wide variety of timely 150 U.S.²
indicators (both publicly available and proprietary) for 125 an up-to-the-minute read on spending trends. And, the Canada¹ early results do point to a fledgling comeback, as do the 100 indications from economies that opened earlier (e.g., 75 China, Korea). For example, Google’s mobility data hint that spending activity bottomed around mid-April in 50 North America, a bit earlier in Europe, and has been slowly grinding higher since then (Charts 4 & 5). This has 25 largely been corroborated by other indicators, although 04 08 12 16 20 the Johnson Redbook retail report is still tracking a further . Sources: BMO Economics, Haver Analytics ¹ (2014 = 100); ² (1985 = 100) decline in U.S. sales in May from April’s deeply depressed level.
May 29, 2020 | Page 12 of 20 Feature
Looking further ahead, consumer confidence is sending mixed messages on the spending outlook. U.S. sentiment recovered only slightly in May according to the Conference Board, although it remains notably well above the depths of the Great Recession in 2009 (Chart 6). And, perhaps more surprisingly, U.S. consumer expectations about the future are now barely lower than the average reading in 2019 and over the past five years. This suggests that households clearly view this episode— including the horrific job losses—as temporary, and unlikely to seriously affect medium- term spending plans. Canadian consumers are notably more circumspect; even with a moderate recovery in May, confidence remains close to the lows of the past 60 years. Bottom Line: Consumers face serious challenges from both the health concerns and from economic uncertainty, and it is little surprise that savings rates have blasted higher. But, the very fact that savings have risen so rapidly offers a glimmer of hope for a rebound in spending in coming months. While savings rates may have been reset somewhat higher by the pandemic, they will not stay anywhere close to current elevated levels for long.
May 29, 2020 | Page 13 of 20 Economic Forecast
Economic Forecast Summary for May 29, 2020
2019 2020 Annual Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2019 2020 2021 CANADA
Real GDP (q/q % chng : a.r.) 1.2 3.2 1.1 0.6 -8.2 -40.0 42.0 10.0 1.7 -6.0 6.0
Consumer Price Index (y/y % chng) 1.6 2.1 1.9 2.1 1.8 -0.2 0.1 0.2 1.9 0.4 1.5
Unemployment Rate (percent) 5.8 5.6 5.6 5.7 6.3 12.6 8.7 8.3 5.7 9.0 7.5
Housing Starts (000s : a.r.) 187 224 223 201 208 162 187 201 209 189 215
Current Account Balance ($blns : a.r.) -69.3 -35.7 -45.9 -37.2 -44.4 -72.8 -71.4 -67.5 -47.0 -64.0 -61.5
Interest Rates (average for the quarter : %)
Overnight Rate 1.75 1.75 1.75 1.75 1.25 0.25 0.25 0.25 1.75 0.50 0.25
3-month Treasury Bill 1.65 1.67 1.64 1.66 1.29 0.25 0.25 0.25 1.65 0.50 0.25
10-year Bond 1.86 1.62 1.36 1.52 1.20 0.60 0.65 0.75 1.59 0.80 1.05
Canada-U.S. Interest Rate Spreads (average for the quarter : bps)
90-day -79 -68 -38 5 16 11 12 12 -45 13 12
10-year -80 -72 -43 -28 -18 -7 -10 -9 -56 -11 -7
UNITED STATES
Real GDP (q/q % chng : a.r.) 3.1 2.0 2.1 2.1 -5.0 -40.0 36.0 7.0 2.3 -5.5 5.0
Consumer Price Index (y/y % chng) 1.6 1.8 1.8 2.0 2.1 0.3 0.4 0.3 1.8 0.8 1.3
Unemployment Rate (percent) 3.9 3.6 3.6 3.5 3.8 16.6 11.7 9.5 3.7 10.4 7.1
Housing Starts (mlns : a.r.) 1.20 1.26 1.29 1.43 1.49 0.73 1.10 1.36 1.30 1.17 1.29
Current Account Balance ($blns : a.r.) -548 -505 -502 -439 -387 -355 -392 -406 -498 -385 -425
Interest Rates (average for the quarter : %)
Fed Funds Target Rate 2.38 2.38 2.13 1.63 1.13 0.13 0.13 0.13 2.13 0.38 0.13
3-month Treasury Bill 2.44 2.35 2.02 1.61 1.13 0.15 0.10 0.10 2.10 0.40 0.10
10-year Note 2.65 2.33 1.79 1.79 1.38 0.65 0.75 0.85 2.14 0.90 1.15
EXCHANGE RATES (average for the quarter)
US¢/C$ 75.2 74.8 75.7 75.8 74.4 71.2 71.1 71.3 75.4 72.0 72.8
C$/US$ 1.33 1.34 1.32 1.32 1.34 1.40 1.41 1.40 1.33 1.39 1.37
¥/US$ 110 110 107 109 109 107 108 110 109 109 113
US$/Euro 1.14 1.12 1.11 1.11 1.10 1.08 1.06 1.08 1.12 1.08 1.10
US$/£ 1.30 1.29 1.23 1.29 1.28 1.24 1.23 1.22 1.28 1.24 1.26
Blocked areas mark BMO Capital Markets forecasts; up and down arrows ( ) indicate forecast changes; spreads may differ due to rounding .
May 29, 2020 | Page 14 of 20 Key for Next Week
Benjamin Reitzes, Canada Canadian Rates & Macro Strategist [email protected] .
BoC Policy Announcement See Benjamin Reitzes’ Thought on page 6. . Wednesday, 10:00 am
Merchandise Trade The shutdown of broad segments of the global economy points to sharp declines in Deficit both exports and imports. Energy prices bottomed in the month, with spot WTI oil Thursday, 8:30 am prices negative at one point. In addition, production cuts likely started to come into Apr. (e) $3.0 bln . Mar. $1.4 bln effect, which could hit oil-by-rail volumes. Look for exports and imports to fall double- digits in the month, with energy driving a larger drop in exports, widening the trade deficit to $3 bln. Employment Most of the shutdown-related damage was done in April, but there were some Friday, 8:30 am secondary shockwaves in May. Indeed, with re-openings largely only starting in the May (e) -3.1% (-500,000) Apr. -11.0% (-1.993 mln) second half of the month, many of those returning to work would not have been captured in the survey week. Accordingly, we’re looking for another 500,000 drop in Unemployment Rate employment, which would bring the three-month total decline to 3.5 million. Expect May (e) 15.0% a chunky rebound in June, though again, the pace of re-opening will play a big role. Apr. 13.0% Moreover, many of the labour-intensive sectors (e.g. restaurants, hotels, retail) will Average Hourly Wages be among the slowest to recover, suggesting a full recovery will take place over an May (e) +11.0% y/y extended period. Our call would push the jobless rate up to 15%, with a huge margin Apr. +10.9% y/y . of error around that figure as the labour force swings have been significant with those furloughed and many on CERB not being included. Watch hours worked once again this month as they tend to provide a better indicator for the move in broader activity.
Michael Gregory, CFA, Sal Guatieri, United States Deputy Chief Economist Senior Economist [email protected] [email protected]
. .
Manufacturing ISM (PMI) The April ISM manufacturing index dropped 7.6 points to 41.5, recording the largest Monday, 10:00 am decline and lowest level since the Great Recession. The fact it didn’t surpass the May (e) 43.6 Consensus 43.5 prior downturn reflects the behaviour of two components, supplier deliveries and . Apr. 41.5 inventories. Like new orders, production and employment, these components typically have high readings during booms and low readings during busts. Only this time, the Non-manufacturing ISM supply disruptions caused by the lockdowns and shutdowns pushed the deliveries ISM (NMI) index up to its highest level since the 1973-74 OPEC oil embargo. Meantime, the Wednesday, 10:00 am plummet in the production index to record lows (back to 1948) appears to have been May (e) 43.9 Consensus 44.0 mirrored by sales to keep inventory levels nearly unchanged. With states reopening . Apr. 41.8 and factories firing up, we look for the ISM index to improve overall but stay below 50 (+2.1 points to 43.6). The regional Fed factory indices (NY, Philly, Dallas, Richmond and KC), apart from the Chicago PMI, all improved in May but remained mired in recession territory. Despite dropping a record (since 1997) 10.7 points in April to 41.8, the ISM non- manufacturing index (NMI) also stayed above its Great Recession lows. However,
May 29, 2020 | Page 15 of 20 Key for Next Week
three of the index’s equally-weighted four components hit record lows (business activity, employment and new orders), as the supplier deliveries index hit a record high. Meanwhile, the regional services sector surveys released so far (by the NY, Philly and Dallas Feds) also improved in May but stayed in recession territory. The NMI should increase 2.1 points to 43.9. Although mostly all non-factory enterprises will get a lift as states reopen, some industries will lag owing to divergent reopening plans across the country, lingering physical distancing and sanitation protocols, and a lagging “confidence to crowd” in the absence of a vaccine. These industries include some Transportation (airlines, public transit), Accommodation & Food Services, Arts, Entertainment & Recreation, along with non-food Retail Trade. Of course, we judge other industries will be leading such as Public Administration, food stores, Health Care & Social Assistance, Information, and Warehousing. Overall, this points to a more restrained economic recovery. Initial Claims Initial jobless claims are expected to slow further but remain at a lofty 1.9 million in Thursday, 8:30 am the week ended May 30. Several states are still processing past filings, and several May 30 (e) 1,900k (-223k) May 23 2,123k (-323k) industries (e.g., airlines and restaurants) are still laying off workers due to the longer- lasting impacts of the virus. Continued claims retreated in the week ended May 16 Continuing Claims but stayed above 21 million, and this doesn't include the nearly 8 million workers May 23 claiming Pandemic Unemployment Assistance in the prior week. Continued claims May 16 21,052k (-3,860k) . should decline further given the easing of precautionary measures in all 50 states, helping to benchmark the speed of the recovery in labour markets. Nonfarm Payrolls The still-high number of persons filing jobless claims suggests the reopening of the Friday, 8:30 am economy came too late to save the May jobs report from further disaster, though it May (e) -8,000k Consensus -7,500k should at least show a smaller 8 million decline in payrolls after April’s historic rout of Apr. -20,537k 20.5 million positions. Leisure, hospitality and retail industries should continue to face the bulk of the job losses. Manufacturing could remain weak, as the May 18 restart for Unemployment Rate the major automakers likely missed the payrolls survey period. Keep an eye on the May (e) 20.0% Consensus 19.5% number of “permanent” job losses reported in the household survey, as they jumped Apr. 14.7% to 2 million in April, or 10% of layoffs. The unemployment rate is expected to spike from 14.7% in April to 20% in May (a level last reached in June 1938). This assumes the Average Hourly Earnings May (e) +1.0% +8.7% y/y participation rate steadies after plunging more than 3 ppts in just two months. After Consensus +1.0% +8.1% y/y diving 15% in April, total hours worked should decline much less in May, and will . Apr. +4.7% +7.9% y/y guide estimates for Q2 real GDP. With lesser-paid workers taking the brunt of layoffs, average hourly earnings could rise another 1% in May after jumping 4.7% in April. Suffice it to say that most workers’ wages will remain under tight restraint for some time.
Central Banks ECB Monetary Policy See Jennifer Lee’s Thought on page 8. Meeting Thursday, 7:45 am . Press conference at 8:30 am
May 29, 2020 | Page 16 of 20 Financials Markets Update
Financial Markets Update for May 29, 2020
May 29 ¹ May 22 Week Ago 4 Weeks Ago Dec 31, 2019 (basis point change) Canadian Call Money 0.25 0.25 0 0 -150 Money Market Prime Rate 2.45 2.45 0 0 -150 U.S. Money Fed Funds (effective) 0.25 0.25 0 0 -150 Market Prime Rate 3.25 3.25 0 0 -150 3-Month Rates Canada 0.19 0.25 -6 -6 -147 United States 0.13 0.11 2 4 -141 Japan -0.12 -0.13 2 3 -1 Eurozone -0.31 -0.28 -3 -3 8 United Kingdom 0.23 0.25 -3 -32 -56 Australia 0.10 0.10 0 0 -81 2-Year Bonds Canada 0.29 0.28 1 -1 -141 United States 0.16 0.17 -1 -3 -141 10-Year Bonds Canada 0.53 0.50 2 0 -117 United States 0.66 0.66 0 4 -126 Japan 0.00 -0.01 1 3 2 Germany -0.45 -0.49 4 14 -26 United Kingdom 0.18 0.17 1 -6 -63 Australia 0.89 0.87 2 1 -49 Risk Indicators VIX 29.2 28.2 1.1 pts -8.0 pts 15.5 pts TED Spread 21 25 -5 -23 -16 Inv. Grade CDS Spread ² 77 87 -10 -13 32 High Yield CDS Spread ² 549 624 -75 -104 269 (percent change) Currencies US¢/C$ 72.40 71.45 1.3 2.0 -6.0 C$/US$ 1.381 1.400 — — — ¥/US$ 107.79 107.64 0.1 0.8 -0.8 US$/€ 1.1107 1.0901 1.9 1.1 -0.9 US$/£ 1.231 1.217 1.2 -1.5 -7.1 US¢/A$ 66.39 65.37 1.6 3.4 -5.4 Commodities CRB Futures Index 128.86 129.53 -0.5 9.6 -30.6 Oil (generic contract) 33.44 33.25 0.6 69.1 -45.2 Natural Gas (generic contract) 1.77 1.88 -6.0 -6.4 -19.2 Gold (spot price) 1,735.50 1,734.68 0.0 2.1 14.4 Equities S&P/TSX Composite 15,172 14,914 1.7 3.8 -11.1 S&P 500 3,016 2,955 2.1 6.5 -6.6 Nasdaq 9,392 9,325 0.7 9.1 4.7 Dow Jones Industrial 25,220 24,465 3.1 6.3 -11.6 Nikkei 21,878 20,388 7.3 11.5 -7.5 Frankfurt DAX 11,587 11,074 4.6 6.7 -12.5 London FT100 6,077 5,993 1.4 5.4 -19.4 France CAC40 4,695 4,445 5.6 2.7 -21.5 S&P ASX 200 5,756 5,497 4.7 9.7 -13.9 ¹ = as of Noon ² = One day delay .
May 29, 2020 | Page 17 of 20 Global Calendar — June 1–June 5
Monday June 1 Tuesday June 2 Wednesday June 3 Thursday June 4 Friday June 5
Capital Spending Services PMI Household Spending Q1 (e) -5.0% y/y May F (e) 25.3 Apr. (e) -12.8% y/y an
p Q4 -3.5% y/y Apr. 21.5 Mar. -6.0% y/y
a Manufacturing PMI Composite PMI J May F (e) 38.4 May F (e) 27.4 Apr. 41.9 Apr. 25.8
EURO AREA EURO AREA EURO AREA GERMANY Manufacturing PMI Jobless Rate Services PMI Factory Orders May F (e) 39.5 Apr. (e) 8.2% May F (e) 28.7 Apr. (e) -19.7% -29.7% y/y Apr. 33.4 Mar. 7.4% Apr. 12.0 Mar. -15.6% -16.0% y/y GERMANY GERMANY Composite PMI ITALY Markets Closed Jobless Rate Unemploy. May F (e) 30.5 Retail Sales May (e) 6.2% +190,000 Apr. 13.6 Euro Area Apr. Apr. 5.8% +373,000 Retail Sales Mar. -20.5% -18.4% y/y FRANCE Apr. (e) -15.0% -21.7% y/y Jobless Rate Mar. -11.2% -9.2% y/y Apr. P ECB Monetary Policy Meeting Mar. 8.4% ITALY Jobless Rate Apr. P (e) 9.3% Mar. 8.4% Manufacturing PMI Nationwide House Prices Services PMI Construction PMI GfK Consumer Confidence May F (e) 40.6 May (e) -1.0% +2.8% y/y May F (e) 27.8 May (e) 28.8 May F (e) -34 Apr. 32.6 Apr. +0.7% +3.7% y/y Apr. 13.4 Apr. 8.2 Apr. -33 U.K. Composite PMI May F (e) 28.9 Apr. 13.8 CHINA AUSTRALIA CHINA AUSTRALIA PMI D Mfg. Non-mfg RBA Monetary Policy Meeting Caixin Services PMI Trade Surplus May (e) 51.1 53.5 May (e) 47.8 Apr. (e) A$7.5 bln Apr. 50.8 53.2 Apr. 44.4 Mar. A$10.6 bln Other Caixin Manufacturing PMI Caixin Composite PMI Retail Sales May (e) 49.6 May Apr. (e) -17.9% Apr. 49.4 Apr. 47.6 Mar. +8.5% AUSTRALIA Real GDP Q1 (e) -0.4% +1.4% y/y Q4 +0.5% +2.2% y/y Building Approvals Apr. (e) -12.0% Mar. -4.0% D = date approximate Upcoming Policy Meetings | Bank of England: June 18, Aug. 6, Sep. 17 | European Central Bank: July 16, Sep. 10, Oct. 29
May 29, 2020 | Page 18 of 20 North American Calendar — June 1–June 5
Monday June 1 Tuesday June 2 Wednesday June 3 Thursday June 4 Friday June 5
8:30 am Provincial GDP (2019) 10:30 am 3-, 6- & 12-month bill 8:30 am Labour Productivity 8:30 am Merchandise Trade 8:30 am Employment
9:30 am Markit Manufacturing PMI auction $20.0 bln Q1 (e) +2.3% Deficit May (e) -3.1% (-500,000) (new cash $20.0 bln) Q4 unch Apr. (e) $3.0 bln Apr. -11.0% (-1.993 mln) May Apr. 33.0 BoC Buyback: Under 2-year sector 10:00 am BoC Policy Mar. $1.4 bln 8:30 am Unemployment Rate D Announcement 2:00 pm BoC Deputy Gov. May (e) 15.0%
Canada Auto Sales May Tiff Macklem becomes BoC Governor Gravelle speaks to the Apr. 13.0% Greater Sudbury Apr. -75.2% y/y BoC Buyback: 5-year sector 8:30 am Average Hourly Wages Chamber of Commerce BoC Buyback: 10-year sector May (e) +11.0% y/y Noon 30-year bond auction Apr. +10.9% y/y $2.5 bln
10:00 am Ivey Purchasing 2-year bond auction announcement Managers Index (s.a.)
BoC Buyback: 30-year sector May Apr. 22.8
BoC Buyback: 2-year sector
9:45 am Markit Manufacturing 11:00 am 4- & 8-week bill auction 7:00 am MBA Mortgage Apps 7:30 am Challenger Layoff Report PMI (May F) announcements May 29 May
10:00 am Manufacturing ISM (PMI) 11:30 am 119-day cash management May 22 +2.7% Apr. 671,129 (+1,577% y/y) 8:30 am Nonfarm Payrolls May (e) 43.6 bill auction $40 bln 8:15 am ADP National 8:30 am Initial Claims May (e) -8,000k
Consensus 43.5 11:30 am 42-day cash management Employment Report May 30 (e) 1,900k (-223k) Consensus -8,000k Apr. 41.5 bill auction $65 bln May (e) -8,000k May 23 2,123k (-323k) Apr. -20,537k Consensus -9,500k 10:00 am Construction Spending 8:30 am Continuing Claims 8:30 am Unemployment Rate Apr. (e) -8.0% Apr. -20,236k May 23 May (e) 20.0% Consensus -6.5% 9:45 am Markit Services/Composite May 16 21,052k (-3,860k) Consensus 19.5%
United States Mar. +0.9% PMI (May F) 8:30 am Productivity Unit Labour Apr. 14.7% Ward’s Total Vehicle Sales D 10:00 am Factory Orders Costs 8:30 am Average Hourly Earnings May (e) 10.0 mln a.r. Apr. (e) -16.0% Q1 F (e) -2.6% a.r. +4.9% a.r. May (e) +1.0% +8.7% y/y Consensus 10.8 mln a.r. Consensus -15.0% Consensus -2.5% a.r. +4.8% a.r. Consensus +1.0% +8.9% y/y Apr. 8.6 mln a.r. Mar. -11.0% Q1 P -2.5% a.r. +4.8% a.r. Apr. +4.7% +7.9% y/y 11:30 am 13- & 26-week bill 10:00 am Non-manufacturing ISM Q4 +1.2% a.r. +0.9% a.r. 3:00 pm Consumer Credit auctions $117 bln (NMI) 8:30 am Goods & Services Apr. (e) -$15.0 bln C May (e) 43.9 Trade Deficit Mar. -$12.0 bln Consensus 44.0 (and revisions) Apr. 41.8 Apr. (e) $49.0 bln Consensus $41.5 bln Mar. $44.4 bln 11:00 am 13- & 26-week bill, 3-, 10R- year note, 30R-year bond auction announcements
11:30 am 4- & 8-week bill auctions
C = consensus D = date approximate R = reopening Upcoming Policy Meetings | Bank of Canada: July 15, Sep. 9, Oct. 28 | FOMC: June 9-10, July 28-29, Sep. 15-16
May 29, 2020 | Page 19 of 20 General Disclosures "BMO Capital Markets" is a trade name used by the BMO Investment Banking Group, which includes the wholesale arm of Bank of Montreal and its subsidiaries BMO Nesbitt Burns Inc., BMO Capital Markets Limited in the U.K., Bank of Montreal Europe Plc in Ireland and BMO Capital Markets Corp. in the U.S. BMO Nesbitt Burns Inc., BMO Capital Markets Limited, Bank of Montreal Europe Plc and BMO Capital Markets Corp are affiliates. BMO does not represent that this document may be lawfully distributed, or that any financial products may be lawfully offered or dealt with, in compliance with any regulatory requirements in other jurisdictions, or pursuant to an exemption available thereunder. This document is directed only at entities or persons in jurisdictions or countries where access to and use of the information is not contrary to local laws or regulations. Their contents have not been reviewed by any regulatory authority. Bank of Montreal or its subsidiaries (“BMO Financial Group”) has lending arrangements with, or provide other remunerated services to, many issuers covered by BMO Capital Markets. The opinions, estimates and projections contained in this report are those of BMO Capital Markets as of the date of this report and are subject to change without notice. BMO Capital Markets endeavours to ensure that the contents have been compiled or derived from sources that we believe are reliable and contain information and opinions that are accurate and complete. However, BMO Capital Markets makes no representation or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to BMO Capital Markets or its affiliates that is not reflected in this report. The information in this report is not intended to be used as the primary basis of investment decisions, and because of individual client objectives, should not be construed as advice designed to meet the particular investment needs of any investor. This document is not to be construed as an offer to sell, a solicitation for or an offer to buy, any products or services referenced herein (including, without limitation, any commodities, securities or other financial instruments), nor shall such Information be considered as investment advice or as a recommendation to enter into any transaction. Each investor should consider obtaining independent advice before making any financial decisions. This document is provided for general information only and does not take into account any investor’s particular needs, financial status or investment objectives. BMO Capital Markets or its affiliates will buy from or sell to customers the securities of issuers mentioned in this report on a principal basis. BMO Capital Markets or its affiliates, officers, directors or employees have a long or short position in many of the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The reader should assume that BMO Capital Markets or its affiliates may have a conflict of interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein.
Dissemination of Economic Publications
Our publications are disseminated via email and may also be available via our web site https://economics.bmo.com. Please contact your BMO Financial Group Representative for more information.
Additional Matters
This report is directed only at entities or persons in jurisdictions or countries where access to and use of the information is not contrary to local laws or regulations. Its contents have not been reviewed by any regulatory authority. BMO Capital Markets does not represent that this report may be lawfully distributed or that any financial products may be lawfully offered or dealt with, in compliance with regulatory requirements in other jurisdictions, or pursuant to an exemption available thereunder.
To Australian residents: BMO Capital Markets Limited is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and is regulated by the UK Financial Conduct Authority under UK laws, which differ from Australian laws. This document is only intended for wholesale clients (as defined in the Corporations Act 2001) and Eligible Counterparties or Professional Clients (as defined in Annex II to MiFID II).
To Canadian Residents: BMO Nesbitt Burns Inc. furnishes this report to Canadian residents and accepts responsibility for the contents herein subject to the terms set out above. Any Canadian person wishing to effect transactions in any of the securities included in this report should do so through BMO Nesbitt Burns Inc.
To U.K./E.U. Residents: In the UK, Bank of Montreal London Branch is authorised and regulated by the Prudential Regulation Authority and the Financial Conduct Authority (“FCA”) and BMO Capital Markets Limited is authorised and regulated by the FCA. The contents hereof are intended solely for clients which satisfy the criteria for classification as either a “professional client” or an “eligible counterparty”, each as defined in Directive 2014/65/EU (“MiFID II”). Any U.K. person wishing to effect transactions in any security discussed herein should do so through Bank of Montreal, London Branch or BMO Capital Markets Limited; any person in the E.U. wishing to effect transactions in any security discussed herein should do so through BMO Capital Markets Limited. In the UK this document is published by BMO Capital Markets Limited which is authorised and regulated by the Financial Conduct Authority. The contents hereof are intended solely for the use of, and may only be issued or passed on to, (I) persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (II) high net worth entities falling within Article 49(2)(a) to (d) of the Order (all such persons together referred to as "relevant persons"). The contents hereof are not intended for the use of and may not be issued or passed on to retail clients.In an E.U. Member State this document is issued and distributed by Bank of Montreal Europe plc which is authorised and regulated in Ireland and operates in the E.U. on a passported basis. This document is only intended for Eligible Counterparties or Professional Clients, as defined in Annex II to “Markets in Financial Instruments Directive” 2014/65/EU (“MiFID II”).
To Hong Kong Residents: This document is issued and distributed in Hong Kong by Bank of Montreal (“BMO”). BMO is an authorized institution under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong) and a registered institution with the Securities and Futures Commission (CE No. AAK809) under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). This material has not been reviewed or approved by any regulatory authority in Hong Kong. Accordingly the material must not be issued, circulated or distributed in Hong Kong other than (1) except for "structured products" as defined in the Securities and Futures Ordinance, in circumstances which do not constitute it as a “Prospectus” as defined in the Companies Ordinance or which do not constitute an offer to the public within the meaning of that Ordinance, or (2) to Professional investors as defined in the Securities and Futures Ordinance and the Securities and Futures (Professional Investor) Rules made thereunder. Unless permitted by the securities laws of Hong Kong, no person may issue in Hong Kong, or have in its possession for issue in Hong Kong this material or any other advertisement, invitation or document relating to the products other than to a professional investor as defined the Securities and Futures Ordinance and the Securities and Futures (Professional Investor) Rules.
To Korean Residents: This material is not provided to make a recommendation for specific Korean residents to enter into a contract for trading financial investment instruments, for investment advising, for discretionary investment, or for a trust, nor does it constitute advertisement of any financial business or financial investment instruments towards Korean residents. The material is not provided as advice on the value of financial investment instruments or any investment decision for specific Korean residents. The provision of the material does not constitute engaging in the foreign exchange business or foreign exchange brokerage business regulated under the Foreign Exchange Transactions Act of Korea.
To PRC Residents: This material does not constitute an offer to sell or the solicitation of an offer to buy any financial products in the People’s Republic of China (excluding Hong Kong, Macau and Taiwan, the “PRC”). BMO and its affiliates do not represent that this material may be lawfully distributed, or that any financial products may be lawfully offered, in compliance with any applicable registration or other requirements in the PRC, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. This material may not be distributed or published in the PRC, except under circumstances that will result in compliance with any applicable laws and regulations.
Singapore Residents: This document has not been registered as a prospectus with the Monetary Authority of Singapore and the material does not constitute an offer or sale, solicitation or invitation for subscription or purchase of any shares or financial products in Singapore. Accordingly, BMO and its affiliates do not represent that this document and any other materials produced in connection therewith may lawfully be circulated or distributed, whether directly or indirectly, to persons in Singapore. This document and the material do not and are not intended to constitute the provision of financial advisory services, whether directly or indirectly, to persons in Singapore. This document and any information contained in this report shall not be disclosed to any other person. If you are not an accredited investor, please disregard this report. BMO Singapore Branch does not accept legal responsibility for the contents of the report. In Asia, Bank of Montreal is licensed to conduct banking and financial services in Hong Kong and Singapore. Certain products and services referred to in this document are designed specifically for certain categories of investors in a number of different countries and regions. Such products and services would only be offered to these investors in those countries and regions in accordance with applicable laws and regulations. The Information is directed only at persons in jurisdictions where access to and use of such information is lawful.
To Thai Residents: The contents hereof are intended solely for the use of persons qualified as Institutional Investors according to Notification of the Securities and Exchange Commission No. GorKor. 11/2547 Re: Characteristics of Advice which are not deemed as Conducting Derivatives Advisory Services dated 23 January 2004 (as amended). BMO and its affiliates do not represent that the material may be lawfully distributed, or that any financial products may be lawfully offered, in compliance with any regulatory requirements in Thailand, or pursuant to an exemption available under any applicable laws and regulations.
To U.S. Residents: BMO Capital Markets Corp. furnishes this report to U.S. residents and accepts responsibility for the contents herein, except to the extent that it refers to securities of Bank of Montreal.
These documents are provided to you on the express understanding that they must be held in complete confidence and not republished, retransmitted, distributed, disclosed, or otherwise made available, in whole or in part, directly or indirectly, in hard or soft copy, through any means, to any person, except with the prior written consent of BMO Capital Markets.
ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST
BMO Financial Group (NYSE, TSX: BMO) is an integrated financial services provider offering a range of retail banking, wealth management, and investment and corporate banking products. BMO serves Canadian retail clients through BMO Bank of Montreal and BMO Nesbitt Burns. In the United States, personal and commercial banking clients are served by BMO Harris Bank N.A., (Member FDIC). Investment and corporate banking services are provided in Canada and the US through BMO Capital Markets.
BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A. (member FDIC), Bank of Montreal Europe p.l.c, and Bank of Montreal (China) Co. Ltd, the institutional broker dealer business of BMO Capital Markets Corp. (Member FINRA and SIPC) and the agency broker dealer business of Clearpool Execution Services, LLC (Member FINRA and SIPC) in the U.S., and the institutional broker dealer businesses of BMO Nesbitt Burns Inc. (Member Investment Industry Regulatory Organization of Canada and Member Canadian Investor Protection Fund) in Canada and Asia, Bank of Montreal Europe p.l.c. (authorised and regulated by the Central Bank of Ireland) in Europe and BMO Capital Markets Limited (authorised and regulated by the Financial Conduct Authority) in the UK and Australia.
® Registered trademark of Bank of Montreal in the United States, Canada and elsewhere.
™ Trademark Bank of Montreal in the United States and Canada.
© COPYRIGHT 2020 BMO CAPITAL MARKETS CORP.
A member of BMO Financial Group
May 29, 2020 | Page 20 of 20