Post date: 04/05/2020 09:03

World currencies rallied against the dollar last week as a number of hard hit markets showed signs of stabilization, particularly oil. Investors were in a buoyant mood until Friday, when Trump’s lashing out against China combined with thin holiday markets in most of the world to send world equities lower. World currencies mostly held their own, and the dollar ended down against every G10 currency and most emerging market ones.

This week the focus will be squarely on the US payroll report for April, out Friday afternoon. This data will allow us to gauge precisely the damaged wrought on the US labor market by the pandemic, after a series of dismal but perhaps less accurate weekly jobs reports. The other key question will be to see whether the rally in risk assets has got ahead of itself, given the dreadfulness of the economic data so far.


Soft retail sales data out the UK did little to move Sterling, which mostly tracked closely the Euro moves against the dollar. The main event this week is the Bank of England meeting on Thursday, where the MPC is universally expected to hold rates at the de facto zero bound. The market will be looking to the minutes of the meeting to measure members expectations for the depth of the economic contraction. Beyond that, further details on PM Johnson plans to reopen the economy gradually after May 7th will be key.


Eurozone economic growth in the first quarter came out at a truly dismal -16.8% in annualized rates. This rate of contraction dwarfs so far the US equivalent, which came out at -4.8%. We think this is mostly due to the late timing of the US confinement orders relative to Europe during the month of March, and expected that the gap will close in the second quarter. The good news is that unemployment ticked up only slightly, as various state schemes to support employment in spite of low activity kicked in. The ECB announced a new financing program, PELTRO, intended to support banks through loans that have even lower interest rates and more attractive terms than the existing TLTROS. The Euro put in a surprisingly good performance, and it seems the market is coming around to our view that the programs put in place by the ECB are sufficient to ensure no systemic Euro risks arise while individual states deal with the crisis.


The U.S. Federal Reserve announced some tweaks to its recently announced lending programs, and Chair Powel committed to keeping extraordinary measures in place as long as necessary, but aside from that no market-moving news came out of the Fed meeting last week. We now turn to Friday’s payroll report, which is expected to show eye-popping jumps in job loss and unemployment. We are more negative than the consensus, expecting a 20% number reflecting the brutal losses in jobs over the past few weeks. With attention now shifting to reopening plans for the different economies, the stubbornly high contagion and death numbers out of the US lead us to expect that the US rebound will lag the Eurozone, putting a floor under the Euro.