Unemployment Claims, ISM, World Gold Council Report: Data Digest

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Unemployment Claims: Already 30 Million!

We’ve got another piece of downbeat data from the US last week which indicated little signs of improvement in the course of the downturn. The number of people filed for unemployment claims posted another worse-than-expected gain, follows from the Friday data. Yet another 3.839 million people moved into jobless category last week while the total number of unemployed rose to 30.3 million since mid-March. Given that a third of the working population in the US (16-65 years old) is economically inactive, only half of the working population will take paychecks. This is a severe punch to the key component of US GDP – consumer spending.

The actual reading came worse than the estimate of 3.5 mn. The growth rate has been declining for the fourth week in a row, indicating that the overall negative trend in layoffs is weakening. However, as unemployment moves to more resilient sectors, the inability of firms to quickly restore hiring increases, making job loss permanent or lagging behind future pickup.

It appears that the market theme of easing of lockdowns and re-opening of the economy fails to create a strong buying impulse due to growing sense of undelivered expectations. The experience of Florida, Georgia, Tennessee and South Carolina, which partially lifted restrictions, indicates that consumers are reluctant to boost offline spending and firms to recover hiring. Lockdown easing does not eliminate the need for social distancing, which is a huge barrier to services sector. Assuming that social distancing is a long-term or permanent shift, some sectors may be facing permanent loss of some demand. With recovery expectations revised to the downside there are less reasons to be confident about stock market gains (which, perhaps, still reflects the real economy).

Manufacturing ISM: A false Impression

ISM Manufacturing index fell to 41.5 points in April. However, the broad indicator is misleading, since the delivery times component rose to 76.5 points while the others fell. The rise of delivery time is good in times of a pickup as this indicates that firms struggle to fulfil rising number of orders. But in current conditions, the increase in delivery time indicated broken supply chains. The steep fall of the other components (new orders, production volumes, employment) surpassed the drop observed during the GFC. Production component dropped to a new historical low.

XAUUSD: Shortage in Q1

In its latest quarterly report, the World Gold Council reported that gold demand rose slightly in the first quarter (+ 1%) to 1,084 tons, thanks to ETF and Central Bank purchases that replaced lost demand from other consumer sectors.

Central banks increased demand to 145 tons from 108 tons in the previous quarter. One factor of downside pressure on prices in the 2nd quarter, according to the agency, is a reduction in purchases by Central banks, including Russia. Gold ETFs recorded capital inflows of 298 tons against only 25 tons in the 4th quarter of 2019. This significant inflow was motivated by two specific reasons: growing sense of uncertainty and expectations of rising inflation. Now we’ve got concrete evidence of this.

Demand for jewelry decreased by 39% YoY due to rising prices and falling consumer demand (mainly for luxury goods). Demand for jewelry from the two main consumers – China and India fell by 65% ​​and 41% YoY, respectively. The demand for bullion and coins also fell (-6% YoY).

On the supply side, the agency noted a slowdown in production growth to only 3% YoY, which was a growth factor for the price. In the second quarter, this factor is expected to dry up due to easing of lockdowns.

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