Robert Brusca

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U.K. inflation has remained tame. In December there was a broad-based acceleration, but that has dissipated in February and March. In March and February, only about 21% of the major categories and the headline accelerated month-to-month. In March, the CPIH was flat, the core was up by 0.1%, and the HICP definition for the price index saw prices fall by 0.1%.

The year-on-year graphic for the U.K. shows inflation decelerating rather steadily after peaking in 2017. The diffusion data in the table confirm and underscore that the trends on several annual periods and sub-annual sequential periods as well as over the recent three months largely agree.

Inflation metrics of such different periodicities do not always reveal the same trends; in this case, they do substantially.

Of course, declining prices are now underpinned by dropping oil prices and those prices promise to remain on the weak side of history for some time. Brent crude prices have fallen for three months in a row. Year-on-year Brent prices have fallen for two months in a row as well as in 10 of the last 12 months, leaving a long trail of weak energy prices in the pipeline.

Nonetheless, the CPIH accelerates from three-months to six-months (2.1% vs. 1.3%). Over three months, CPIH categories show acceleration in nearly 79% of the major divisions. However, that was a break from the previous two years and the monthly data make it clear that the price pressures seen in January are now on the run.


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With the coronavirus stalking growth and governments throwing up various patchwork arrangements to try to support the out of work who remain substantially unsupportable, there is a large segment of the population at economic risk. Government programs will help some and save some. But there is going to be a lot of pain over this virus given the way it has been handled.

In the U.S., the Federal Reserve has made it clear that it is talking to epidemiologists because economic forecasts cannot be made without their input. So rather than saying "We all Keynesians now," I will say 'we are all epidemiologists now.' And so what does that mean? I'm afraid it means that we are at the whim of what the pandemic specialists want to do and how they view this crisis. And I find this disturbing because they are locked in their own group-think with protocols for action that make NO SENSE TO ME. Maybe they are fans of David Byrne's?

I assume that COVID-19 is COVID-19 is COVID-19. In other words, I assume that the disease 'is the same everywhere' but depending on local demographics and even on how it is approached its impact could play out differently. The table below shows you why I am so upset with how global health authorities have dealt with the virus. Look at the panel under 'Shares.' Here we present the NYC data on COVID-19 deaths by age group and by three categories of heath: (1) those with underlying conditions present, (2) those with no underlying conditions present, and (3) those whose medical history is unknown.

Astonishing facts! 
There are two astonishing facts here. (1) One is that the virus preys on the unhealthy. If a person has an underlying health condition, his or her probability of dying is high. 73% of the deaths in NYC are to people in this group. (2) Secondly there is no correlation with age for the healthy. REPEAT: No correlation with age. This is a surprise because so many old people have died, especially in Italy. What is going on? By the time someone is old, they usually have amassed some of the preexisting conditions that make them vulnerable to the virus. Similarly, a Wall Street Journal article <a href="https://www.wsj.com/articles/a-top-immunologist-on-why-coronavirus-is-killing-more-african-americans-11587556800?mod=hp_lead_pos10">(here)</a> explores the reason for their being more Black deaths and traces that back to the prominence of preexisting conditions in the Back community and to a greater incidence of multigenerational households in the Black community.

The bottom line here is pretty clear. If you are healthy, there really is very little risk of death only 1.4% of New York City deaths came to the group reported as having none of the preexisting conditions that the NYC health authorities flag. So why is everyone sheltered? Why not shelter and really protect the at-risk?


The COVID-19 Factor- What to Expect from Policy 
<img border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/200422 2.png" width="660" height="180">
Source: <a href="https://www1.nyc.gov/site/doh/covid/covid-19-data.page">NYC COVID-19 Data, NYC Government</a>.


A role for testing 
While Boris Johnson is under pressure for how he dealt with the crisis, he may have been on the right track but on the wrong train. The ticket was not to let the virus run rampant but to use some social distancing to slow the spread and to stridently wall off those with preexisting conditions. Sweden has not had a catastrophe by failing to follow the rest of Europe down the rabbit hole of shelter-at-home. But what is also is clear is that health officials and individuals should be taking GREAT CARE to shelter, buffer, and protect people with the preexisting conditions since for them the virus is deadly. Anyone with contact among such people should be tested daily to clear them before they are allowed to have such contact.

In short, in the U.S. and Europe, isolation has been done badly and too broadly. It was too broadly administered to have been done too-well. The attempt to isolate all has greatly impacted economies that did not need to do their imitation of the movie 'The Day the Earth Stood Still.' What was needed was to protect the at-risk population, a much smaller group that I have not been able to put a number on yet.

Knowing nothing about one's health history, an old person should shelter because they are likely to have acquire in the course of their life, a preexisting condition. Certainly, the poor are at greater risk because they are more likely to mingle in multigenerational households putting older peoples with preexisting conditions at risk. There are still clear health challenges, but they can be understood and can be managed far better and more cheaply than sheltering everyone at home-- that is excessive.

An economist's opinion is likely to be as good as anyone else's... 
These determinations come from looking at the numbers not from my ability to be a better pandemicist than the pandemicists. A key issue is that they have been given free reign with no push-back from other experts, other scientists/sciences. In the U.S., the 'situation has developed' in which those who argue to open the economy are being accused of being insensitive to human life and are accused of putting the value of the dollar above the value of human lives. In fact, it is the other way around. Recessions, especially deep dark recessions, are a health hazard. When the government blocks people from pursuing their livelihood, there is no entrepreneurial work-around. There is only bankruptcy unless a person has been lucky enough to secure one of the scarce government loans.

The question we need to ask is who are these pandemicists and who gave them absolute authority to make decisions that in retrospect and in PROSPECT seem to be much more damaging and draconian that need be. Someone needs to shift the balance of power here and to change the beat of the dialogue that we have all been catatonically marching to.

There is more than one way to flatten a curve. As the NYC data show…had NYC been able to shelter effectively its at-risk population and its deaths could have been reduced by at least 73%! That'll flatten your curve! NYC does not provide comparable data for hospitalizations. So there is still a potential issue with hospital facilities.

Gentlemen...start your engines 
But far from having to wait for a vaccine it may be much safer to open large parts of the economy even NOW if the at-risk population can be identified and protected. Spending public money to do that makes sense. And it will be much cheaper than closing down the bulk of Europe, America, and so on. The solution is found in the numbers, properly arrayed. It is not a matter of politics. It is not a matter of putting money ahead of lives. It is not matter of continuing to follow a bad plan. It is matter of putting understanding and action ahead of doing the things that prove to be very damaging. Policy needs to learn and to change. Restarting growth safely is a closer objective than it seems.

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U.K. inflation has remained tame. In December there was a broad-based acceleration, but that has dissipated in February and March. In March and February, only about 21% of the major categories and the headline accelerated month-to- [...]

U.K. Inflation Steps Back; COVID-19 Lurks Less Than People Think

Tom Moeller

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&bull; Home prices remained firm in mid-winter.

The Federal Housing Finance Agency (FHFA) Price Index
increased 0.7% during February following a 0.5% rise in January, revised from
0.3%. The 5.7% y/y gain had been fairly steady since early last year. Over the
past three months, the increase in prices improved to 8.1%, the strongest
increase since April 2017.

Monthly price increases were strongest in the Middle Atlantic
(5.8% y/y), East North Central (5.3% y/y), Mountain (8.1% y/y) and West North
Central (5.6% y/y) regions of the country.

Somewhat smaller monthly gains were logged in the Pacific
(6.2% y/y) and East South Central (5.8% y/y) areas of the country.

Lower monthly increases occurred in the South
Atlantic (6.1% y/y), New England (4.6% y/y) and West South Central (4.2% y/y)
regions of the country.

Note that these data are for February and were unlikely to
have been impacted by the coronavirus outbreak.

The FHFA house price index is a weighted purchase-only index
that measures average price changes in repeat sales of the same property. An
associated quarterly index includes refinancings on the same kinds of
properties. The indexes are based on transactions involving conforming,
conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.
Only mortgage transactions on single-family properties are included. The FHFA
data are available in Haver's USECON database.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" >FHFA U.S. House Price Index, 
 Purchase Only (SA %)</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Feb Y/Y</th>
 <th scope="col" >2019</th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td>0.7</td>
 <td>0.5</td>
 <td>0.8</td>
 <td>5.7</td>
 <td>5.3</td>
 <td>6.6</td>
 <td>6.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; New England</td>
 <td>0.4</td>
 <td>0.5</td>
 <td>0.8</td>
 <td>4.6</td>
 <td>4.5</td>
 <td>5.3</td>
 <td>5.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Middle Atlantic</td>
 <td>1.2</td>
 <td>0.7</td>
 <td>0.3</td>
 <td>5.8</td>
 <td>4.5</td>
 <td>5.4</td>
 <td>4.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; East North Central</td>
 <td>1.0</td>
 <td>0.5</td>
 <td>-0.1</td>
 <td>5.3</td>
 <td>5.5</td>
 <td>6.5</td>
 <td>5.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; West North Central</td>
 <td>0.9</td>
 <td>0.3</td>
 <td>0.9</td>
 <td>5.6</td>
 <td>5.1</td>
 <td>6.1</td>
 <td>5.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; South Atlantic</td>
 <td>0.4</td>
 <td>0.7</td>
 <td>0.9</td>
 <td>6.1</td>
 <td>5.8</td>
 <td>7.2</td>
 <td>6.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; East South Central</td>
 <td>0.7</td>
 <td>0.7</td>
 <td>1.1</td>
 <td>5.8</td>
 <td>5.8</td>
 <td>6.1</td>
 <td>5.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; West South Central</td>
 <td>0.3</td>
 <td>-0.4</td>
 <td>1.4</td>
 <td>4.2</td>
 <td>4.7</td>
 <td>5.3</td>
 <td>6.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Mountain</td>
 <td>1.0</td>
 <td>0.3</td>
 <td>1.3</td>
 <td>8.1</td>
 <td>7.1</td>
 <td>9.1</td>
 <td>8.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Pacific</td>
 <td>0.8</td>
 <td>0.8</td>
 <td>0.6</td>
 <td>6.2</td>
 <td>4.7</td>
 <td>7.5</td>
 <td>8.5</td>
 </tr>
 </tbody>
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• Home prices remained firm in mid-winter. The Federal Housing Finance Agency (FHFA) Price Index increased 0.7% during February following a 0.5% rise in January, revised from 0.3%. The 5.7% y/y gain had been fairly steady since early [...]

U.S. FHFA House Prices Increase Pre-Coronavirus

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&bull; The housing market remains weak.
&bull; Financing rates are low.

The Mortgage Bankers Association reported that its Mortgage
Loan Application Index eased 0.3% (+70.0% y/y) in the week ended April 17 after
the prior week's 7.3% increase. Applications for refinancing slipped 0.8% w/w (+225.3%
y/y) after improving 10.1% in the previous week. Purchase applications increased
2.1% w/w but fell by roughly one-third y/y.

The effective interest rate on a 15-year fixed-rate mortgage
of 3.12% was little changed over the last three weeks. The effective interest
rate on the 30-year fixed-rate mortgage of 3.54% was close to the record low for
the series which dates back to 1990. The effective rate on a 30-year Jumbo
mortgage edged up to 3.91% from 3.87%. The rate on the 5-year adjustable rate
mortgage declined to 3.23% and reversed the increases of the prior five weeks.

The average mortgage loan size declined to $305,800 (-6.3%
y/y). That was down from the $367,900 high reached early in March. The average
loan size of refinancings fell sharply to $301,600 (-2.9% y/y) from $372,100, a
high last month. The average loan size for purchases rose slightly to $318,500
(-5.4% y/y) but also was below its early-March high.

Home buyers and owners continue to lock in currently low
levels of interest rates. Applications for fixed-rate loans increased 87.5% y/y,
while applications for adjustable rate loans fell 21.3% y/y.

The survey covers over 75% of all U.S. retail residential
mortgage applications and has been conducted weekly since 1990. Respondents
include mortgage bankers, commercial banks and thrifts. The base period and
value for each index is March 16, 1990=100. The figures for weekly mortgage
applications and interest rates are available in Haver's SURVEYW database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >MBA Mortgage Applications (%,
 SA)</th>
 <th>04/17/20</th>
 <th>04/10/20</th>
 <th>04/03/20</th>
 <th>Y/Y</th>
 <th>2019</th>
 <th>2018</th>
 <th>2017</th>
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 <td class="firstcol" >Total Market Index</td>
 <td>-0.3</td>
 <td>7.3</td>
 <td>-17.9</td>
 <td>70.0</td>
 <td>32.4</td>
 <td>-10.4</td>
 <td>-17.8</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Purchase</td>
 <td>2.1</td>
 <td>-1.8</td>
 <td>-12.2</td>
 <td>-31.1</td>
 <td>6.6</td>
 <td>2.1</td>
 <td>5.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Refinancing</td>
 <td>-0.8</td>
 <td>10.1</td>
 <td>-19.4</td>
 <td>225.3</td>
 <td>71.1</td>
 <td>-24.3</td>
 <td>-34.0</td>
 </tr>
 <tr>
 <td class="firstcol" >15-Year Effective Mortgage Interest Rate
 (%)</td>
 <td>3.12</td>
 <td>3.11</td>
 <td>3.10</td>
 <td>3.98</td>
 <td>3.71</td>
 <td>4.35</td>
 <td>3.59</td>
 </tr>
 <tr>
 <td class="firstcol" >30-Year Effective Mortgage Interest Rate
 (%)</td>
 <td>3.54</td>
 <td>3.53</td>
 <td>3.57</td>
 <td>4.59</td>
 <td>4.34</td>
 <td>4.94</td>
 <td>4.32</td>
 </tr>
 </tbody>
 </table>
 
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• The housing market remains weak. • Financing rates are low. The Mortgage Bankers Association reported that its Mortgage Loan Application Index eased 0.3% (+70.0% y/y) in the week ended April 17 after the prior week's 7.3% increase. [...]

U.S. Mortgage Applications & Interest Rates Are Little Changed

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 &nbsp;&nbsp;April 22, 2020
• Home prices remained firm in mid-winter.
The Federal Housing Finance Agency (FHFA) Price Index
increased 0.7% during February following a 0.5% rise in January, revised from
0.3%. The 5.7% y/y gain had been fairly steady since early last year. Over the
past three months, the increase in prices improved to 8.1%, the strongest
increase since April 2017. 
Monthly price increases were strongest in the Middle Atlantic
(5.8% y/y), East North Central (5.3% y/y), Mountain (8.1% y/y) and West North
Central (5.6% y/y) regions of the country.
Somewhat smaller monthly gains were logged in the Pacific
(6.2% y/y) and East South Central (5.8% y/y) areas of the country.
&nbsp;Lower&nbsp; monthly increases occurred in the South
Atlantic (6.1% y/y), New England (4.6% y/y) and West South Central (4.2% y/y)
regions of the country.&nbsp; 
Note that these data are for February and were unlikely to
have been impacted by the coronavirus outbreak.
The FHFA house price index is a weighted purchase-only index
that measures average price changes in repeat sales of the same property. An
associated quarterly index includes refinancings on the same kinds of
properties. The indexes are based on transactions involving conforming,
conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac.
Only mortgage transactions on single-family properties are included. The FHFA
data are available in Haver's USECON database.
<table width="1871" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" width="845">FHFA U.S. House Price Index, 
 Purchase Only (SA %)</th>
 <th scope="col" width="146">Feb</th>
 <th scope="col" width="146">Jan</th>
 <th scope="col" width="146">Dec</th>
 <th scope="col" width="146">Feb Y/Y</th>
 <th scope="col" width="146">2019</th>
 <th scope="col" width="146">2018</th>
 <th scope="col" width="146">2017</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="845">Total</td>
 <td align="center" width="146">0.7</td>
 <td align="center" width="146">0.5</td>
 <td align="center" width="146">0.8</td>
 <td align="center" width="146">5.7</td>
 <td align="center" width="146">5.3</td>
 <td align="center" width="146">6.6</td>
 <td align="center" width="146">6.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="845">&nbsp; New England</td>
 <td align="center" width="146">0.4</td>
 <td align="center" width="146">0.5</td>
 <td align="center" width="146">0.8</td>
 <td align="center" width="146">4.6</td>
 <td align="center" width="146">4.5</td>
 <td align="center" width="146">5.3</td>
 <td align="center" width="146">5.6</td>
 </tr>
 <tr>
 <td class="firstcol" width="845">&nbsp; Middle Atlantic</td>
 <td align="center" width="146">1.2</td>
 <td align="center" width="146">0.7</td>
 <td align="center" width="146">0.3</td>
 <td align="center" width="146">5.8</td>
 <td align="center" width="146">4.5</td>
 <td align="center" width="146">5.4</td>
 <td align="center" width="146">4.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="845">&nbsp; East North Central</td>
 <td align="center" width="146">1.0</td>
 <td align="center" width="146">0.5</td>
 <td align="center" width="146">-0.1</td>
 <td align="center" width="146">5.3</td>
 <td align="center" width="146">5.5</td>
 <td align="center" width="146">6.5</td>
 <td align="center" width="146">5.9</td>
 </tr>
 <tr>
 <td class="firstcol" width="845">&nbsp; West North Central</td>
 <td align="center" width="146">0.9</td>
 <td align="center" width="146">0.3</td>
 <td align="center" width="146">0.9</td>
 <td align="center" width="146">5.6</td>
 <td align="center" width="146">5.1</td>
 <td align="center" width="146">6.1</td>
 <td align="center" width="146">5.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="845">&nbsp; South Atlantic</td>
 <td align="center" width="146">0.4</td>
 <td align="center" width="146">0.7</td>
 <td align="center" width="146">0.9</td>
 <td align="center" width="146">6.1</td>
 <td align="center" width="146">5.8</td>
 <td align="center" width="146">7.2</td>
 <td align="center" width="146">6.6</td>
 </tr>
 <tr>
 <td class="firstcol" width="845">&nbsp; East South Central</td>
 <td align="center" width="146">0.7</td>
 <td align="center" width="146">0.7</td>
 <td align="center" width="146">1.1</td>
 <td align="center" width="146">5.8</td>
 <td align="center" width="146">5.8</td>
 <td align="center" width="146">6.1</td>
 <td align="center" width="146">5.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="845">&nbsp; West South Central</td>
 <td align="center" width="146">0.3</td>
 <td align="center" width="146">-0.4</td>
 <td align="center" width="146">1.4</td>
 <td align="center" width="146">4.2</td>
 <td align="center" width="146">4.7</td>
 <td align="center" width="146">5.3</td>
 <td align="center" width="146">6.2</td>
 </tr>
 <tr>
 <td class="firstcol" width="845">&nbsp; Mountain</td>
 <td align="center" width="146">1.0</td>
 <td align="center" width="146">0.3</td>
 <td align="center" width="146">1.3</td>
 <td align="center" width="146">8.1</td>
 <td align="center" width="146">7.1</td>
 <td align="center" width="146">9.1</td>
 <td align="center" width="146">8.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="845">&nbsp; Pacific</td>
 <td align="center" width="146">0.8</td>
 <td align="center" width="146">0.8</td>
 <td align="center" width="146">0.6</td>
 <td align="center" width="146">6.2</td>
 <td align="center" width="146">4.7</td>
 <td align="center" width="146">7.5</td>
 <td align="center" width="146">8.5</td>
 </tr>
 </tbody>
</table>

&nbsp;
U.S. Mortgage Applications &amp; Interest Rates are
Little Changed 
by <a href="http://www.haver.com/comment/Moeller.html">Tom
Moeller</a>&nbsp;&nbsp;April 22, 2020
• The housing market remains weak.
• Financing rates are low.
The Mortgage Bankers Association reported that its Mortgage
Loan Application Index eased 0.3% (+70.0% y/y) in the week ended April 17 after
the prior week's 7.3% increase. Applications for refinancing slipped 0.8% w/w (+225.3%
y/y) after improving 10.1% in the previous week. Purchase applications increased
2.1% w/w but fell by roughly one-third y/y.
The effective interest rate on a 15-year fixed-rate mortgage
of 3.12% was little changed over the last three weeks. The effective interest
rate on the 30-year fixed-rate mortgage of 3.54% was close to the record low for
the series which dates back to 1990. The effective rate on a 30-year Jumbo
mortgage edged up to 3.91% from 3.87%. The rate on the 5-year adjustable rate
mortgage declined to 3.23% and reversed the increases of the prior five weeks. 
The average mortgage loan size declined to $305,800 (-6.3%
y/y). That was down from the $367,900 high reached early in March. The average
loan size of refinancings fell sharply to $301,600 (-2.9% y/y) from $372,100, a
high last month. The average loan size for purchases rose slightly to $318,500
(-5.4% y/y) but also was below its early-March high.
Home buyers and owners continue to lock in currently low
levels of interest rates. Applications for fixed-rate loans increased 87.5% y/y,
while applications for adjustable rate loans fell 21.3% y/y.
The survey covers over 75% of all U.S. retail residential
mortgage applications and has been conducted weekly since 1990. Respondents
include mortgage bankers, commercial banks and thrifts. The base period and
value for each index is March 16, 1990=100. The figures for weekly mortgage
applications and interest rates are available in Haver's SURVEYW
database.
<table width="1871" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="877">MBA Mortgage Applications (%,
 SA)</th>
 <th width="141">04/17/20</th>
 <th width="141">04/10/20</th>
 <th width="141">04/03/20</th>
 <th width="141">Y/Y</th>
 <th width="142">2019</th>
 <th width="142">2018</th>
 <th width="142">2017</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" width="877">Total Market Index</td>
 <td align="center" width="141">-0.3</td>
 <td align="center" width="141">7.3</td>
 <td align="center" width="141">-17.9</td>
 <td align="center" width="141">70.0</td>
 <td align="center" width="142">32.4</td>
 <td align="center" width="142">-10.4</td>
 <td align="center" width="142">-17.8</td>
 </tr>
 <tr>
 <td class="firstcol" width="877">&nbsp;&nbsp;Purchase</td>
 <td align="center" width="141">2.1</td>
 <td align="center" width="141">-1.8</td>
 <td align="center" width="141">-12.2</td>
 <td align="center" width="141">-31.1</td>
 <td align="center" width="142">6.6</td>
 <td align="center" width="142">2.1</td>
 <td align="center" width="142">5.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="877">&nbsp;&nbsp;Refinancing</td>
 <td align="center" width="141">-0.8</td>
 <td align="center" width="141">10.1</td>
 <td align="center" width="141">-19.4</td>
 <td align="center" width="141">225.3</td>
 <td align="center" width="142">71.1</td>
 <td align="center" width="142">-24.3</td>
 <td align="center" width="142">-34.0</td>
 </tr>
 <tr>
 <td class="firstcol" width="877">15-Year Effective Mortgage Interest Rate
 (%)</td>
 <td align="center" width="141">3.12</td>
 <td align="center" width="141">3.11</td>
 <td align="center" width="141">3.10</td>
 <td align="center" width="141">3.98</td>
 <td align="center" width="142">3.71</td>
 <td align="center" width="142">4.35</td>
 <td align="center" width="142">3.59</td>
 </tr>
 <tr>
 <td class="firstcol" width="877">30-Year Effective Mortgage Interest Rate
 (%)</td>
 <td align="center" width="141">3.54</td>
 <td align="center" width="141">3.53</td>
 <td align="center" width="141">3.57</td>
 <td align="center" width="141">4.59</td>
 <td align="center" width="142">4.34</td>
 <td align="center" width="142">4.94</td>
 <td align="center" width="142">4.32</td>
 </tr>
 </tbody>
</table>


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&bull; Crude oil prices slid lower last week and dropped further yesterday.


&bull; Gasoline prices fall as drivers stay off the road.


&bull; Natural gas prices ease.


The spot price of West Texas Intermediate crude oil
weakened to $20.10 (-68.5% y/y) per barrel last week from an average $24.40 one
week earlier. It was the lowest price since February 2002. Yesterday, prices
actually turned negative as oil producers paid buyers to take oil over fears
that storage could run out in May. The price of Brent crude oil declined to an
average of $29.18 last week. The price has fallen from a $67.38 high averaged in
the last week of December. Yesterday, the price was $25.93.

Retail gasoline prices declined to $1.81 per gallon
(-36.2% y/y) in the week ended April 20 from $1.85 per gallon in the previous
week. Prices remained below their May 2019 peak of $2.90 per gallon. Haver
Analytics adjusts the gasoline price series for regular seasonal variation. The
seasonally adjusted price fell to $1.73 per gallon from $1.79.

The average price of natural gas edged lower to $1.72/mmbtu
(-34.5% y/y) last week after rising to $1.77 in the prior week. They remained
below the peak of $2.81/mmbtu early in November. Yesterday, the price was $1.86/mmbtu.

Reduced oil &amp; product prices reflect a collapse in demand
and a rise in supply. In the four weeks ending April 10, gasoline demand
declined 31.6% y/y, while total petroleum product demand fell 18.5% y/y. Crude
oil input to refineries declined 10.7% y/y in the past four weeks. At the same
time, gasoline inventories rose 15.0% y/y and inventories of all
petroleum products increased 4.9% y/y.

These data are reported by the U.S. Department of Energy. The
price data can be found in Haver's WEEKLY and DAILY databases.
Greater detail on prices, as well as the demand, production and inventory data,
along with regional breakdowns, are in OILWKLY.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Weekly Energy Prices</th>
 <th>04/20/20</th>
 <th>04/13/20</th>
 <th>04/06/20</th>
 <th>Y/Y %</th>
 <th>2019</th>
 <th>2018</th>
 <th>2017</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Retail Gasoline ($ per Gallon Regular,
 Monday Price, End of Period)</td>
 <td>1.81</td>
 <td>1.85</td>
 <td>1.92</td>
 <td>-36.2</td>
 <td>2.57</td>
 <td>2.27</td>
 <td>2.47</td>
 </tr>
 <tr>
 <td class="firstcol" >Light Sweet Crude Oil, WTI ($ per bbl,
 Previous Week's Average)</td>
 <td>20.10</td>
 <td>24.40</td>
 <td>21.72</td>
 <td>-68.5</td>
 <td>56.91</td>
 <td>64.95</td>
 <td>50.87</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Natural Gas ($/mmbtu, LA, Previous
 Week's Average)</td>
 <td>1.72</td>
 <td>1.77</td>
 <td>1.62</td>
 <td>-34.5</td>
 <td>2.57</td>
 <td>3.18</td>
 <td>2.99</td>
 </tr>
	 </tbody>
	 </table>
	 
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• Crude oil prices slid lower last week and dropped further yesterday. • Gasoline prices fall as drivers stay off the road. • Natural gas prices ease. The spot price of West Texas Intermediate crude oil weakened to $20.10 (-68.5% y/y) [...]

U.S. Petroleum Prices Plunge as Demand Dries Up

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It's down, it's up, it's down, it's up...it's confused! 
The table below shows the percentile standings of the ZEW assessments this month on different gauges. The bottom of the table offers various summary statistics among them the change in the (diffusion) index on the month. These assessments have a range of +100 to -100 (everyone can think things are great or everyone can think they are rotten) with many possibilities in between. The main body of the table offers the percentile standing of the diffusion indexes in their queue of values since 1999.

This month the average index reading across table entries is -47.6 for the economic situation and +73.6 for economic expectation. Each of these is the largest swing in the history of the respective series. However, both expectations and the current situation had deteriorated sharply on a month-to-month basis one month ago. This month takes the actual current index reading nearly to its lower limit with a average reading of -93.2 (That is impressively weak for an average of seven entries with the maximum low of -100). But macroeconomic expectations that had fallen so sharply one month ago have rebounded even more sharply. That rebound has put the macroeconomic expectation reading back at a net positive reading, higher than anything we have seen on average since August 2015.

At the same time the ZEW assessment on oil is dead wrong as of mid 'mid-April' survey respondents saw oil at a 98th percentile standing of certainty looking for it to firm. Instead oil prices have collapsed to the weakest we have seen with futures prices even producing negative values for oil. Clearly the ZEW experts are grasping at straws. One month ago the virus and its spread scared the heck out of them; now all of a sudden they see a big bright light at the end of the tunnel. This is despite there being no vaccine and disparate plans for normalization that are untested as well as the fact that countries are facing a host of differing circumstances.


<img border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/200421.png" width="660" height="250">


The second table below distances us (may be not quite six feet) from the particulars of the first table and shows trends very clearly. The color coding shows us that only expectations (really) have percentile standings of the diffusion indexes above their 50% mark which places them above their historic medians. This explains the jump in the stock markets. Stocks are still assessed a bit weaker month-to-month, but that assessment was cut very little month-to-month. And stock's queue standings remain well below the queue standing for expectations. Stocks are not being marked up in step with expectations for economic revival but are being marked up nonetheless and we see that in real world equity market functioning.


<img border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/200421 2.png" width="660" height="270">


Not only are the so-called curves beginning to flatten rather broadly but people are getting tired of being cooped-up and the economic damage is spreading in a way that threatens to get out of control even in the face of support programs and the money that is being paid out. A change is coming; the equity market can smell it.

Expectations for 'normalization' are shifting up on a pastiche of optimism, impatience, and obstinance. WHO warns that that the transition toward normalcy must be measured.

On balance, the economic situation is still asses as poor at a horrifically weak 3.6% queue standing on average. Economic expectations at a 63.4% average are above their historic median. Inflation expectations are at their lower 10th percentile. Short-term interest rate expectations are at their lower 15th percentile with long-term rates at their 11th percentile. Stock expectations hold to their 37th percentile, still well below their median.

These, of course, are only assessments and expectations. Given that financial experts know little about the virus, we should view these metrics they offer as being unusually suspect. At the same time, these metrics go a long way to explaining why markets are acting as they are acting. There is optimism about the future despite the deep dark days of present. Will that dichotomy stand? Will the more buoyant expectations be satisfied? Stay tuned for as the world churns…









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It's down, it's up, it's down, it's up...it's confused! The table below shows the percentile standings of the ZEW assessments this month on different gauges. The bottom of the table offers various summary statistics among them the [...]

ZEW Experts Show Wild Swings in Expectations and More

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&bull; Existing home sales near 2019 low as coronavirus sets in.
&bull; Sales decline around the country.
&bull; Prices improved before quarantine.

The National Association of Realtors (NAR) reported that
sales of existing homes during March declined 8.5% (+0.8% y/y) to 5.270 million
(AR) from 5.760 million in February, revised from 5.770 million. It was the
lowest level of sales since April of last year. The Action Economics Forecast
Survey expected March sales of 5.30 million.

The median price of all existing homes sold increased 3.8% (NSA,
8.0% y/y) to $280,600 following a 1.6% February increase. The average sales
price improved 3.3% last month (6.2% y/y) to $316,000. These price data are not
seasonally adjusted.

Existing home sales weakened around the country in March. In
the West, sales fell 13.6% (-0.9% y/y) to 1.080 million and reversed the
increase in February. Sales in the South declined 9.1% (+0.9% y/y) to 2.290
million, the lowest level since November. In the Northeast, sales fell 7.1%
(-3.0% y/y) to 650,000, roughly five-year low. Sales in the Midwest were off
3.1% (+4.2% y/y) to 1.250 million, the lowest level since May of last year.

Sales of existing single-family homes weakened 8.1% (+1.3%
y/y) to 4.740 million units and reversed February's rise. Sales of condos and
co-ops plunged 11.7% (-3.6% y/y) to 530,000 units, the lowest level
since July 2012.

The number of homes on the market decreased 10.2% y/y, but
rose seasonally in recent months. The months' supply of homes on the market
improved m/m to 3.4 but compared to 3.8 one year earlier. These inventory
figures date back to 1999.

The data on existing home sales, prices and affordability are
compiled by the National Association of Realtors and can be found in Haver's USECON
database. The regional price, affordability and inventory data are available in
the REALTOR database. The expectations figure is from the Action
Economics Forecast Survey, reported in the AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Existing Home Sales (SAAR,
 000s)</th>
 <th scope="col" >Mar</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Jan</th>
 <th scope="col" >Mar Y/Y %</th>
 <th scope="col" >2019</th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total Sales</td>
 <td>5,270</td>
 <td>5,760</td>
 <td>5,420</td>
 <td>0.8</td>
 <td>5,330</td>
 <td>5,341</td>
 <td>5,531</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >&nbsp;&nbsp; Northeast</td>
 <td>650</td>
 <td>700</td>
 <td>730</td>
 <td>-3.0</td>
 <td>687</td>
 <td>689</td>
 <td>735</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; Midwest</td>
 <td>1,250</td>
 <td>1,290</td>
 <td>1,280</td>
 <td>4.2</td>
 <td>1,248</td>
 <td>1,265</td>
 <td>1,301</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >&nbsp;&nbsp; South</td>
 <td>2,290</td>
 <td>2,520</td>
 <td>2,350</td>
 <td>0.9</td>
 <td>2,281</td>
 <td>2,246</td>
 <td>2,270</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; West</td>
 <td>1,080</td>
 <td>1,250</td>
 <td>1,060</td>
 <td>-0.9</td>
 <td>1,115</td>
 <td>1,141</td>
 <td>1,225</td>
 </tr>
 <tr class="even">
 <td class="firstcol" >Single-Family Sales</td>
 <td>4,740</td>
 <td>5,160</td>
 <td>4,820</td>
 <td>1.3</td>
 <td>4,754</td>
 <td>4,742</td>
 <td>4,907</td>
 </tr>
 <tr>
 <td class="firstcol" >Median Price Total ($, NSA)</td>
 <td>280,600</td>
 <td>270,400</td>
 <td>266,200</td>
 <td>8.0</td>
 <td>269,783</td>
 <td>257,267</td>
 <td>245,950</td>
 </tr>
 </tbody>
 </table>
 
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• Existing home sales near 2019 low as coronavirus sets in. • Sales decline around the country. • Prices improved before quarantine. The National Association of Realtors (NAR) reported that sales of existing homes during March [...]

U.S. Existing Home Sales Pull Back but Prices Rise

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

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Winnie Tapasanun

260428J35.jpg

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U.S. house prices were essentially unchanged m/m in February after rises of 0.2% in January (+0.1% initially) and 0.3% in December (unrevised), according to the Federal Housing Finance Agency (FHFA) House Price Index. February marked the first flat reading since September following four consecutive m/m increases. The HPI reached a record high of 441.43 in February, up 14.8% from its August 2022 low of 384.59. The year-on-year growth rate eased to 1.7% in February—the lowest since March 2012—from 1.8% in January (+4.1% in February 2025), down from a high of 6.9% in February 2024 and well below a peak of 18.5% in February 2022.

By region, February FHFA house prices showed a mixed performance. House prices fell m/m in February (vs. January) in four of the nine census divisions. Declines were led by Mountain (-1.1% vs. +0.4%), followed by Pacific (-0.5% vs. +0.6%), West North Central (-0.4% vs. +0.3%), and Middle Atlantic (-0.1% vs. +0.3%). To the upside, house prices rose m/m in four census divisions in February (vs. January): South Atlantic (+0.6% vs. -0.2%), East South Central (+0.2% vs. +1.2%), New England (+0.2% vs. +0.6%), and West South Central (+0.2% vs. -0.3%). Meanwhile, house prices in East North Central were virtually unchanged m/m for the second successive month in February following seven straight m/m gains.

Year-on-year house prices continued to rise in February in most regions, except Mountain, Pacific, and West South Central. The y/y growth rate accelerated in February (vs. January) in only two of the nine census divisions: East South Central (+4.0% vs. +3.2%) and South Atlantic (+0.9% vs. +0.4%). Meanwhile, house price growth decelerated y/y in February (vs. January) in four regions: New England (+3.1% vs. +3.9%), West North Central (+3.1% vs. +3.6%), East North Central (+3.8% vs. +4.5%), and Middle Atlantic (+4.2% vs. +4.5%). To the downside, Mountain (-0.7% vs. 0.0%), Pacific (-0.4% vs. -0.3%), and West South Central (-0.1% vs. -0.4%) posted y/y declines in February.

The FHFA house price index is a weighted purchase-only index that measures average price changes in repeat sales of the same property. An associated quarterly index includes refinancing the same kind of properties. The indexes are based on transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included.

The FHFA data are available in Haver’s **USECON** database.

260428L35.jpg

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- February FHFA HPI 0.0% m/m; +1.7% y/y, lowest since Mar. ’12.
- House prices down m/m in four of nine census divisions, led by Mountain (-1.1%); up in four, driven by South Atlantic (+0.6%); flat in East North Central.
- House prices up y/y in six of nine regions, led by Middle Atlantic (+4.2%), but down in Mountain (-0.7%), Pacific (-0.4%), and West South Central (-0.1%).

U.S. FHFA House Prices Flat in February After Four Straight M/M Gains

Tian Yong Woon

In this week’s Letter, we cover the latest developments and implications of the Middle East conflict for Asia, while also making space for other important themes, including artificial intelligence (AI). The Middle East conflict remains in a no deal state coming out of the weekend, though some early Monday optimism emerged in Asian markets following Iran’s reported offer to reopen the Strait of Hormuz (chart 1). Nonetheless, as the Strait closure drags on, so too do the fiscal costs of domestic fossil fuel subsidies across Asia, which have been shown to move closely with crude oil prices (chart 2). While such measures offer direct relief by cushioning household energy costs, they remain difficult to sustain over the long haul.

Over the week, we also saw a further fraying in regional monetary policy trends, with the Philippines hiking its policy rate for the first time in about two years amid inflation concerns, while Indonesia stood pat on rates (chart 3). Investor attention is likely to remain fixed on monetary policy this week, with the Bank of Japan due to decide on policy. Expectations for an April hike have faded amid the persistent Middle East conflict, though yen weakness continues to present a source of concern (chart 4). The week also brings China’s latest PMI readings (chart 5), adding to the recent run of hard data accompanying the Q1 GDP release.

Beyond the Middle East conflict, the evolution of AI continues to demand close attention. Before geopolitical tensions took centre stage, AI was the dominant market narrative — and that enthusiasm has hardly faded. If anything, recent developments suggest the story is broadening: use cases are expanding, scalability is improving, and access is widening beyond large corporates to the mass market — increasingly spilling into the realm of physical AI. It may well be this persistent wave of optimism that is helping to underpin equity valuations, even as the geopolitical backdrop darkens (chart 6).

**The Middle East conflict**
About two months in, we remain stuck in the limbo of the US-Iran conflict, which has left the Strait of Hormuz largely closed and much of the world starved of the critical oil flows needed to power the global economy. The back and forth between the US and Iran has persisted in recent weeks, with both sides again failing to reach a peace deal over the weekend, though Monday’s news of Iran offering to reopen the Strait has revived some hope in markets. In truth, commodity and market valuations do not hinge so much on a peace deal itself, but rather on the resumption of oil flows through the Strait, something that could materialise even in the absence of a formal deal, though any agreement that includes and credibly delivers such a reopening would likely be warmly received by markets. Until then, market gyrations are likely to persist, with prices fluctuating in response to each new snippet of news. And until then, the world will continue both to be starved of, while gradually adapting to, the drip feed of oil flows emerging from the Strait.

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**The fiscal costs of the Middle East conflict**
As the Middle East conflict drags on, so too does the strain on fiscal resources across parts of Asia, as the costs of energy-related subsidy programmes continue to mount. While such programmes have an immediate, direct, and tangible impact in shielding households from surging energy costs, they are far from sustainable, particularly if oil prices remain well above targeted levels or stay elevated for an extended period. As chart 2 illustrates, the costs of these explicit subsidy programmes tend to rise closely with crude oil prices, as seen in India and Indonesia. Other measures adopted elsewhere, such as drawing down oil reserves, may be less fiscally costly, but are similarly difficult to sustain indefinitely. In both respects, the clock is ticking, and the world continues to hold its breath as the conflict drags on.

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**The latest central bank responses to the conflict**
Over the past week, Asia saw two central bank decisions. The Philippines’ (BSP) opted to deliver its first rate hike in about two years, while Indonesia’s (BI) chose to stand pat on policy rates and instead committed to stepped up FX intervention (chart 3). This latest round of decisions points to a further fraying of what had been a broad regional monetary policy consensus, namely that central banks would delay additional easing while maintaining a high bar for outright tightening. Domestic considerations, however, remain paramount. In the Philippines’ case, the central bank has moved to rein in inflation, which is already showing notable signs of price pass through stemming from disruptions linked to the Strait of Hormuz. That said, BSP is not the first in the region to buck the reluctance to tighten. Singapore’s central bank had already tightened policy in mid-April, albeit through its own distinct framework, given its use of the exchange rate rather than policy rates as the primary channel for monetary policy.

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**The week ahead**
Looking to the week ahead, a major central bank decision looms in Japan. Market expectations for the Bank of Japan to deliver a rate hike at its April meeting have ebbed amid the persistence of the Middle East conflict, to which Japan remains particularly vulnerable given its reliance on oil imports flowing through the Strait of Hormuz. At the same time, inflation in Japan has yet to become a major concern, with recent readings having picked up but not yet entering troubling territory. One potential source of concern, however, lies with the Japanese yen, which has remained on a weakening trend since early last year (chart 4). That depreciation has been one of the key arguments underpinning calls for further rate hikes.

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The week also brings China’s latest PMIs into focus. March saw a divergence between China’s official PMI readings, which improved, and the unofficial readings from RatingDog, which instead pulled back. Nonetheless, both official and unofficial gauges remained in expansionary territory (chart 5), with investors now watching closely to see whether that resilience can be sustained amid ongoing stresses from the Middle East, or whether offsetting drivers can continue to keep Chinese business sentiment and prospects buoyant.

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**Beyond the strait**
Moving beyond the Middle East conflict, a whole host of developments continue to unfold globally, many of which have in fact helped offset some of the pessimism wrought by the Strait’s chokehold. One such development is artificial intelligence (AI), which had dominated headlines before the outbreak of the conflict and continues to advance at breakneck pace. AI capabilities are still rapidly evolving, while practical applications, such as physical AI embodied in humanoid robots, are beginning to show broader and stronger use cases. Production of such robots is also becoming increasingly scalable and within reach not just for industrial complexes and healthcare, but for the mass market as well. It is perhaps growing optimism around these prospects that has helped keep equity valuations buoyant, even in the face of the festering conflict in the Middle East. Moreover, while concerns over AI-driven job displacement persist, new opportunities are emerging as well, particularly for AI adopters, with a growing share of job postings in Western economies increasingly referencing AI-related skills, as shown in chart 6.

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Asia

Economic Letter from Asia: Not Just About the Strait

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**The Distributive Trades Survey**

The U.K. Distributive Trades Survey for April 2026 and the look-ahead expectation readings for May paint an extremely soured outlook for the U.K. economy.

**Retail ranking**: Surveys for retail sales compared to a year ago, orders compared to a year ago, and sales evaluated for the time of year all have rankings near zero, which is the worst result on this timeline. This zero distinction applies to retail sales compared to a year ago. The best ranking is 11.6%; that is for sales evaluated for the time of year. Orders compared to a year ago have a 4.2 percentile standing. The stock-to-sales ratio—which is a completely different concept—shows that the inventory-to-sales ratio has a 29.9 percentile standing.

**Retail diffusion**: The raw April diffusion readings (up minus down diffusion) show that sales compared to a year ago slipped to a reading of -68 in April from -52 in March. Orders fell to -46 in April from -26 in March. Sales evaluated for the time of year fell to -32 April from -23 in March. All three measures weakened, and all three weakened decisively, resulting in extremely weak rankings. All of the rankings are executed on data back to 2002.

**Expectations for retailing**: The expectations readings for May show slippage again across all three metrics: expected sales compared to a year ago, expected orders compared to a year ago, and expected sales for the time of year. Expected sales compared to a year ago fell to -60 in May from -49 in April. Orders compared to a year ago declined to -45 in May from -30 in April, and sales for the time of year slipped to -43 from -19. In May, these readings have rankings in a 0.4 percentile standing for sales compared to a year ago, a 1.8 percentile standing for sales evaluated relative to the time of year, and a 4.6 percentile standing for orders compared to a year ago. These two panels on current and expected retail sales volumes are just simply terrible: weak monthly, weak in ranking terms, and showing slipping momentum.

The distributor trade series also provides data on the wholesale sector. While the wholesale sector is not quite as beat up as the retail sector, it's still extremely weak. There is no cause for any kind of hope that things are getting better based on wholesaling trends.

**Wholesaling**: The wholesale survey for sales compared to a year ago edged lower to -32 in April from -31 in March. Orders compared to a year ago remained at a reading of -41 in April. Sales evaluated for the time of year improved to a reading of -20 in April from -39 in March—a significant step up, but still very weak. The percentile standings for these three categories show sales compared to a year ago at the 8.8 percentile, orders compared to a year ago at the 5.6 percentile, and sales evaluated for the time of year at the 14.8 percentile.

**Wholesale Expectations**: The look-ahead observations, which provide expectations for wholesaling in May, show a similar constellation of readings, with sales compared to a year ago falling to -37 in May from -27 in April and orders compared to a year ago falling to -42 from -38, while sales evaluated for the time of year improved to  16 from  37. That category for wholesale sales improved both in April in real time and in May for expectations; however, it continues to have a very weak percentile standing, at the 17.9 percentile in May, while sales for a year ago have a 6.7 percentile standing and orders for a year ago have a 6.0 percentile standing.

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While some of the global PMI data have improved, these survey data for the U.K. are particularly dour. The war in Ukraine drags on, and there's a new conflict in Iran that has shut the Strait of Hormuz, creating energy problems for much of Europe. More broadly, supply chains have been harmed. In addition, the U.K. is undergoing a bout of political instability, as its Prime Minister is under pressure and a good deal of political uncertainty is being worsened by deteriorating economic performance.

Both the U.K. and the European Monetary Union had been showing some progress on inflation until the Iran war hit. Now, as the oil prices are up so sharply, headline inflation is going to be worse everywhere and there will probably be a bit more attention directed to the core inflation rate. However, the U.K. has had inflation too hot for a while, and it has failed to settle down. At its last meeting, the Bank of England’s Monetary Policy Committee warned that if the war was still ongoing at the next meeting, there would be a risk of a rate hike. So, it would seem that a rate hike is going to be in play unless the economy falls off a cliff first, which, based on the distributive trades data, is also something that could happen. The U.K. economy appears to be on very unsound footing, and what happens next is just about anybody's guess.

United Kingdom

U.K. Retail Sales: Worse Than During Covid

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The onset of the war in Iran appears to have hit the German economy extremely hard as the Ifo survey shows very substantial and broad-based decline across its survey in April. The Ifo survey features readings for five sectors as well as an aggregate reading, and it surveys them for climate, current conditions, and expectations. The decline in the Ifo survey is present for all three concepts and across all five sectors, marking the weakening in April as a highly significant and extremely disturbing development. Only manufacturing in the current conditions survey escapes a month-to-month decline.

**The Ifo sequences**: The **climate** reading fell both overall and across each of the five sectors. **Current conditions** declined for the overall and for four of the five sectors, with manufacturing the sole exception. **Expectations** declined for the overall and for all sectors. Several of the sector declines were for a very substantial magnitude, especially when compared to historic changes in these indexes.

**Monthly changes in readings—severe broad deterioration**
The month-to-month change in the climate reading has weakened more month-to-month 19% of the time. That overall result, however, is boosted by manufacturing where the monthly change has been weaker 35% of the time (on data back to 2011). However, all other sectors have seen climate weaker m/m only 2.3% to 6.3% of the time! The current situation readings weakened, with the headline weakening more m/m 11% of the time. This was boosted by manufacturing, the only sector that improved on the month; its ranking on change was in its 85th percentile—quite good and truly stand-alone good news. The other current changes by sector ranged from construction being weaker 1.7% of the time, to retailing that has been weaker about 30% of the time in terms of m/m changes. Expectation changes were uniformly terrible, with the headline drop weaker only 6.3% of the time and sector change month-to-month weaker between 9% and 1.7% of the time. The monthly weakening was uniform and substantial. I document it with these calculations, but you can also see it on the chart above.

**Climate**: The bottom line is that the all-sector index for climate fell to -20.3 in April from -18 in March, placing it at a 10.5 percentile standing on data since 1993. The sector ranking is the highest for construction with a 42.2 percentile standing and the weakness for services at a 1.1 percentile standing—weaker than the table reading nearly 99% of the time. In terms of percentile standing levels or monthly changes, conditions are closing in on grim.

**Current conditions**: Current conditions saw the all-sector index slip to -5.3 in April from -2.4 in March. The headline ranking stands at a 9.8 percentile mark, making it—like the climate reading—weaker than its current reading only about 10% of the time. The strongest reading under current conditions is for construction which has a 60.6 percentile standing; it is the only ranking in the table above its historic median. Manufacturing, the only sector in the survey that improved month-to-month, has a 22.5 percentile standing, while services record the weakest percentile standing under current conditions, at an 8.4 percentile standing.

**Expectations:** The all-sector index for expectations fell to -25.3 in April from -19.9 in March, placing it at a 6.3 percentile standing. The percentile standings across sectors range from a high of 9.5% for manufacturing to a low of 1.5% for retailing. Up until earlier this year, the Ifo was showing signs of improvement; however, all of that has simply collapsed in the last month. Weakness is across economic concepts and sectors, as documented above. For reference, the table also gives a separate set of rankings on where the various indexes stand since the invasion of Ukraine, since that was another marked event that drove the index, that had been improving after Covid, down to lower levels.  Ranked even on this reduced scale looking at conditions only since the invasion of Ukraine, when conditions have generally been weaker, the current rankings across the Ifo survey remained extremely weak. This is a very disturbing survey for the German economy.

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Germany

German Ifo Plunges Everywhere

Andrew Cates

**Energy shock lifts inflation, trims growth**
The IMF’s latest WEO revisions for 2026 broadly reflect the classic stagflationary impact of the recent Middle East energy shock, with growth downgraded and inflation revised higher across most major economies. Higher energy prices act as a tax on real incomes while simultaneously pushing up costs. That said, the picture is not uniform: a number of economies—notably the US, China and India—have seen growth upgrades, reflecting stronger-than-expected momentum so far in 2026. By contrast, the UK stands out at the stagflationary extreme, combining one of the largest growth downgrades with a relatively strong inflation uplift—consistent with its weaker underlying momentum, greater energy sensitivity and more persistent domestic inflation dynamics. More broadly, while the global revisions remain modest—pointing to resilience in activity—the message is that disinflation is no longer a smooth glide back to target but increasingly contingent on energy prices and geopolitical developments.

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**Markets largely shrug off rising economic pessimism**
Notwithstanding a more downbeat assessment from economists—including the IMF’s stagflationary tilt to the outlook—there has been remarkably little follow-through into financial markets. Measures of systemic stress in both the US and UK remain low by historical standards, suggesting that investors are, for now, largely looking through the Middle East conflict. There are several possible explanations: corporate profits remain resilient, the AI-driven investment narrative continues to dominate market thinking, and markets may be assuming that any energy shock will be temporary and contained. In effect, investors appear to be pricing a benign baseline in which geopolitical risks do not materially disrupt growth, inflation expectations or policy. The UK is a partial exception, with a somewhat more visible uptick in stress, which aligns more closely with the IMF’s more challenging growth-inflation trade-off and the economy’s greater sensitivity to energy prices.

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**Volatility falls despite deteriorating growth surprises**
Market optimism is also increasingly at odds with the incoming data flow. Typically, equity volatility declines when growth surprises are positive and inflation surprises are benign. However, the recent pattern has broken that relationship. Growth surprises across the G10 have turned increasingly negative (our series is inverted in the chart below), yet volatility has continued to fall. In other words, markets are becoming less sensitive to weakening macro data, continuing to price a benign outlook even as the data deteriorate. This divergence reinforces the broader theme: investors are, for now, looking through both geopolitical risks and softer economic momentum, placing greater weight on resilience in earnings, the AI-driven narrative and the assumption that policy will remain supportive.

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**Inflation Nowcasts Have Jumped**
Incoming data suggest that headline inflation has moved higher in recent weeks, broadly in line with expectations given the rise in energy prices following the Middle East shock. Nowcasts for CPI across the major economies show a clear rebound in March and April from the lows seen at the start of 2026, with the move occurring in a relatively synchronised fashion. This reinforces the view that the recent pickup in inflation is being driven primarily by a common external factor—energy.

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**Energy shock not yet feeding into underlying inflation**
However, the detailed breakdown of March inflation outcomes suggests that this remains, for now, a largely headline-driven phenomenon. While headline CPI prints were firm across most economies, core inflation—stripping out energy and food—was more subdued and in some cases weaker. This indicates that there has been very limited pass-through from higher energy prices into broader goods and services inflation at this early stage. In other words, the shock is still being absorbed rather than propagated. That distinction is critical for policy and markets alike: as long as second-round effects remain contained, central banks may be able to look through the near-term rise in inflation, even as headline rates move higher.

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**Inflation Expectations Rising as Growth Sentiment Falters**
It remains early days, and much will hinge on how inflation expectations evolve from here. The latest ZEW survey for Germany already conveys the hallmarks of a classic stagflationary shock, with macroeconomic expectations weakening even as inflation expectations have ratcheted sharply higher. This shift is important: while the recent rise in headline inflation has so far shown limited pass-through into core, a sustained increase in expectations would raise the risk of second-round effects and make the inflation process more persistent. In that sense, the ZEW data highlight the key fault line in the current environment—whether the energy-driven shock remains contained, or begins to embed itself more broadly through expectations and pricing behaviour.

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Financial markets have remained notably calm in recent weeks despite rising geopolitical tensions in the Middle East, a more downbeat macroeconomic narrative and elevated uncertainty. Measures of financial stress and volatility remain low, and equity markets continue to look through both the conflict and softer data. That resilience sits alongside a more nuanced macro backdrop. The IMF’s latest WEO revisions point to a classic stagflationary energy shock—growth downgraded and inflation revised higher—although the global impact remains modest and uneven, with some economies still benefiting from stronger momentum (chart 1). At the same time, market pricing appears increasingly detached from the data flow, with volatility declining even as growth surprises have turned more negative relative to inflation (charts 2 and 3). Incoming inflation data reinforce the idea of a largely headline-driven shock, with nowcasts rising in line with higher energy prices but only limited pass-through into core inflation so far (charts 4 and 5). However, it remains early days. Survey evidence, such as the latest ZEW release, suggests that inflation expectations may already be responding in a more concerning way, with a marked rise alongside weakening growth sentiment (chart 6). Taken together, the key question for markets is whether this remains a contained, energy-driven shock that can be looked through—or whether it begins to embed more persistently via expectations, forcing a reassessment of the currently benign outlook.

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Economy in Brief

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U.K. Inflation Steps Back; COVID-19 Lurks Less Than People Think

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