The Day at a Glance | March 26 2020

Historic increase in US jobless claims

Unemployment claims on behalf of US citizens in order to receive benefits increased to 3.28 million, the highest level seen in the country`s history (vs 695 thousand in 1982), which is a sign that a recession in the world`s biggest economy has already begun. This reflects the shock`s severity and speed caused by COVID-19 on the economy, as claims increased in all 50 states, with Pennsylvania, California and Ohio standing out in this regard. The rise in claims comes in response to non-essential business closures mandated by state authorities in attempts to contain the virus`s spread and could just be the beginning of a process that could impact next weeks employment data. Additionally, these figures confirm expectations of seeing a deep contraction in economic activity in 2Q20, with the labor market off balance and the service industry at a standstill due to the contingency.

The FED`s capacity to carry out stimulus has not been fully exhausted: Powell

Jerome Powell, President of the Federal Reserve, assured the central bank will continue to back liquidity and credit in the economy during the health emergency. “We will keep doing that aggressively and forthrightly, as we have been […] we`re not going to run out of ammunition. That doesn`t happen”, said Powell in an interview with NBC. The FED is already carrying unprecedented stimulus measures to counter the virus`s negative economic effects with unlimited purchases of government and corporate debt, constantly offering credit, lesser regulatory requirements regarding the banking sector and providing the global financial market with dollars. “This is a unique situation, this is not a typical downturn […] At a certain point we will get the spread of the virus under control and at that time confidence will return. Businesses will reopen again, people will come back to work”. In Europe, the central bank`s position is also to carry out monetary stimulus at maximum capacity. The European Central Bank has modified the legal framework that used to limit its asset purchasing programs. In a legal document, the ECB assured that clauses that limit it to own just a third of the block`s government`s debt will be disqualified, which would increase the central bank`s purchasing power. Purchases of 750 billion euros began this Thursday and will conclude, at least, at the end of 2020. Long term bonds in Europe have had an important rally this morning. Nevertheless, central bank exit strategies remain unclear once the contingency is over and stimuli doesn`t solve “bottleneck” issues brought by a shock in supply (production stoppages and problems in the production chain).

Moody`s forecasts a 3.7% contraction for Mexico in 2020

The rating agency cut its growth estimates for Mexico to (-) 3.7% for 2020, with a moderate recovery in 2021 (0.9%). According to the report, the estimate takes into account the US economy`s weakness and the strong fall in the tourism sector. Moody`s highlighted the adjustment has no impact on the sovereign`s credit rating and is only part of a general revision of its global growth estimates. For the US, the rating company estimates a (-) 2% contraction this year, and a 2.2% recovery in 2021. According to the Global indicator of Economic Activity, the most recent data regarding the Mexican economy shows a (-) 0.7% contraction in GDP in January, which reflects the economy`s weakness even prior to COVID-19`s impacts. The contraction can be explained to a large extent by a deep fall in the industrial sector (-1.7%) and less vitality in the services sector (-0.2%).