The IMF signalled a possible downward revision of global economic forecasts, as more economies started to ease lockdowns enforced to curb the coronavirus outbreak.
Investors are looking forward to more countries restarting their economies, even as some reported an unwelcome pick up in new coronavirus cases.
Easing lockdowns is interpreted as positive by traders as it enables economic activity curtailed by the coronavirus to resume. Lifting the lockdowns too early, however, risks triggering another wave of the new coronavirus.
South Korea warned of a second wave of the new coronavirus as infections rebounded to a one-month high. At the same time, new infections accelerated in Germany.
On Friday, the April nonfarm payrolls report proved dire but not quite as awful as analysts’ worst fears. The U.S. economy hit a historic unemployment record of 20.5 million jobs in April, the sharpest fall in payrolls since the Great Depression. The unemployment rate rose to 14.7%, a government report on Friday showed. However, the true unemployment rate may be closer to 19.5%.
Further, China’s exports rebound has been quickly overshadowed by dire predictions of Trade War II between the two economic giants.
Markets are hoping Trump’s threats to penalise China for COVID-19 are accommodating Americans’ fear of China. After all, neither side can afford to further knock business confidence at a time when the world faces the worst economic contraction on record.
The Bank of England remained in neutral gear, maintaining the Official Bank Rate at 0.25%, as expected.
Britain and the EU start their penultimate scheduled round of trade talks on Monday. The two sides made little progress on major sticking points before a June deadline to agree on any extension of negotiations.
START TRADINGLQDFXperts – Weekly Forex report
The risk appetite was boosted by more economies making moves to re-operate their business, despite the coronavirus continuing to spread. A conciliatory phone call between U.S. and China trade negotiators on Friday also provided a boost to risk appetite.
EUR/USD continues to display considerable volatility. The pair declined by 1.2% last week, erasing most of the gains seen a week earlier. The Eurozone GDP numbers will probably be brutal, reflecting deteriorating conditions across the Eurozone due to the Covid19 outbreak.
GBP/USD posted moderate losses last week, erasing the gains from the previous week. Covid-19 has sent the manufacturing and services industries reeling. The first-quarter GDP is projected to show that the UK economy is contracting. The U.S. dollar remains a safe haven for jittery investors, which could mean trouble for the British pound.
Dollar/yen was almost unchanged last week. Investors will be keeping an eye on the BoJ minutes from the last policy meeting. USD/JPY has been steady in recent weeks, and this trend could continue in the upcoming week.
The Aussie flexed its muscles late last week, as AUD/USD posted strong gains of 1.7%. The Australian economy is in a deep downturn, but the Aussie still had an excellent March, with gains of over 6%. Still, investors will be thinking twice before buying risk assets like the Australian dollar.
The Canadian dollar enjoyed a strong week, with a gain of 1.2 percent. USD/CAD closed the week just above the 1.39 level. The outlook for the Canadian dollar remains negative, despite last week’s strong performance. Economic conditions remain very weak and investors are likely to stick with safe haven assets like the U.S. dollar.
The week ahead – More economies ease restrictions
Analysts will closely watch Chinese inflation and production data due this week or clues on how the pandemic has hit demand in the world’s second-largest economy.
Federal Reserve Chair Jerome Powell is due to give a keynote speech on Wednesday. Analysts suspect he will rule out taking rates negative, at least for now.
- On Tuesday (12.05) the US inflation figures for April will likely show inflation remains at low levels. The headline reading is expected at -0.7%, while the core monthly estimate stands at -0.2%.
- On Wednesday investors are waiting for the British GDP. The quarterly GDP reading for Q4 in 2019 slowed to 0.0%, down from 0.3% in the previous quarter. Analysts forecast a contraction of 2.5% in Q1 of 2020.
- On Thursday (14.05), investors expect the U.S. Unemployment Claims, the Australian Jobs Report, and the BoC Financial System Review. Analysts are bracing for disastrous job numbers for April, as the lockdown has left millions of employees unable to work.
- On Friday (15.05) the spotlight turns to the U.S. Retail Sales. Consumption consists of 70% of the American economy. In March, headline sales fell by 8.7% and the volume of core sales fell by 4.5%. April will probably be a disaster, with headlines sales expectations at 11.0% while core sales are projected to slide by 8.0%. Also, the Eurozone Flash GDP is due. The Eurozone economy recorded a weak gain of 0.1% in Q4 of 2019.
Follow this week’s economic calendar.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, CNBC, FX street