Post date: 11/05/2020 10:28

The key report of the week, the US payroll numbers for the month of April, made a slightly less grim reading than had been expected, but were still disastrous. Markets chose to focus on the silver lining, and risk assets rallied both into the number and the hours following. Currency performance was mixed. European currencies mostly traded in a narrow range, ending the week slightly down. However, the riskier commodity currencies (Canadian, Australians and New Zealand dollar, as well as the Norwegian Krona) rallied strongly. Emerging market currencies also partook of the general bullish mood, with a conspicuous expectation: the Brazilian real, which fell sharply after the central bank cut rates aggressively and made it clever that it is not concerned for now with currency devaluation.

Next week the focus should be on US inflation, retail sales and industrial production data for April, which we expect to make for grim reading. Traders will also be following closely the effects of partial reopening of the economies in the UK and Germany on contagion numbers, as well as the impact of the massive wave of US Treasury bond sales on long term interest rates, as the short term will remain well anchored by the Fed.


The UK gradual exit from the lockdown and its impact on contagion numbers will be the main news this week. Economic numbers, in particular monthly GDP, should provide some backwards-looking reads on the pandemic macroeconomic impact. However we do not expect any earth-shattering moves in Sterling this week, and the Pound should continue to track closely Euro movements for now.


The ruling of the German constitutional court made for some explosive headlines, but we think its impact has been generally overstated. The judges in Karlsruhe did nothing to impede the purchases of sovereign bonds by the ECB. They did ask for the ECB to justify itself and appeared to question the primacy of European justice over European institutions. We do not think the German political establishment will go along with such a potentially disruptive decision and expect the situation to be defused through some sort of face-saving “justification” of the ECB’s purchase programs. Meanwhile, the more limited damage to European labour markets compared to the carnage across the Atlantic and the clear downward trend in contagion numbers (unlike the situation in the US) lead us to maintain our bullish view of the common currency.


The US economy lost 20.5 million jobs last month (better than the expected 22 million), however, this was the sharpest decline in payrolls since the early 1900s. This news was very much expected and was already priced in, so we didn’t see any massive movements off the back of this. Eyes are still on coronavirus data and how the US will carry on easing their lockdown restrictions, also US consumer figures which could move the dollar against the pound and euro later this week.