The International Monetary Fund updated it’s world economic outlook and projects the world economy to contract 3% in 2020. This forecast assumes the pandemic fades in the second half of 2020. Growth for 2021 is forecast to rebound by 5.8%. For the United States the economy is forecast to shrink 6.1% this year and grow 4.5% next year. If the forecast holds, this will be the steepest contraction since the Great Depression.
After the markets closed on Thursday, the announcement of positive preliminary results of a new anti-viral drug drove the markets higher on Friday. However, data from ongoing, randomized clinical studies are needed to provide a scientifically robust understanding of the clinical impact of the treatment. It is unknown how quickly these trial will be completed. how fast FDA approval will be given or how fast production can be ramped up.
Also boosting the markets on Friday was the release of the Trump administration’s guidelines of phases for governors to begin opening their states. As manufacturing supply chains involve multiple states as well as Canada and Mexico, restarting factories may be limited by depending on other states and our neighboring countries. Evidence is mounting that countries that end social distancing too early face the prospect of a rebound of infections.
Despite the recent announce cutbacks in oil production, crude oil inventories rose dramatically and prices fell ending at $18.12 a barrel.
Stocks ended the week mostly higher with the small cap Russell 2000 index lower and the Nasdaq 100 Index sharply higher.
Treasury yields fell with the 30-year bond ending at 1.265% and the 10-Year note at 0.643%. Natural gas rose to $1.761 per MMBTUs. The U.S. dollar rose against a basket of currencies and gold prices fell to $1694.50 an ounce.
In economic numbers this week:
- China’s exports fell 6.6% in March from a year earlier and imports fell 0.9%.
- China reported a 6.8% drop in gross domestic product in the first quarter, the first contraction since China started reporting GDP in 1992.
- The Commerce Department reported
- Retail sales fell 8.7% in March from a month earlier the biggest drop on record. Sales of large ticket items like cars, electronics and appliances fell the most. From a year earlier retail sales fell 6.2%.
- Housing starts fell 22% in March as builders delayed starting new houses and appartments due to stay at home orders.
- New home building permits, a sign of future home construction, fell a more modest 6.8% in March. Permits fell 12% for single family homes but actually increased for multi-family housing.
- The Federal Reserve reported that Industrial Production fell 5.4% in March, the biggest drop since January 1946. The manufacturing component fell 6.3%
- The Labor Department reported first time jobless claims in the week ending March 13th rose another 5.2MM in the prior week. A total of 22MM people have filed unemployment claims in the past four weeks.
- The EIA weekly oil report is attached. Also, the EIA reported in the past week:
- Field production of crude oil dropped from 12.4MM barrels to 12.3MM barrels per day.
- Natural gas storage rose by 73BN cubic feet and is above the five year average at this time of year.
- Baker Hughes reported the number of active oil rigs fell 66 to 438 and the number of active gas rigs fell 7 to 89.
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Loren C. Rex, CFP®, AIF®, MA Erik A Smith AIF®
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Battle Creek, MI 49017
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. The Indices mentioned are unmanaged and cannot be invested into directly.