Nations’ efforts to re-open their economies stirred hopes the world was nearer to emerging from recession, although economic recovery has still a long way to go.
Warm weather persuades much of the world to emerge from coronavirus lockdowns. Outbreak epicenters gradually lift restrictions that have kept millions cooped up for months.
The pandemic has been massively disruptive on supply chains and businesses, particularly in trade-reliant nations. The shakeout in global trade was underlined in recent March data, with exports shrinking the most in nearly four years.
U.S. Federal Reserve Chairman said the U.S. would have a slow recovery from what he called the “biggest shock that the economy’s had in living memory”. Jerome Powell suggested that a full rebound from virus-induced lockdowns could take until the end of 2021. Policymakers may need to take further measures to help firms and households.
Japan’s economy slipped into recession for the first time in 4-1/2 years in the last quarter. The coronavirus crisis damaged the world’s third-largest economy. According to the preliminary official GDP data, the economy contracted an annualised 3.4% in the first quarter. The gloom in Japan is expected to deepen over coming months.
On the Brexit front there was a week-long deadlock over a post-Brexit trade deal with the EU.
Adding to the uncertainty were the trade tensions between the United States and China. Beijing warned it was opposed to the latest rules against telecoms equipment company Huawei.
About one hundred countries are calling for an “impartial, independent and comprehensive evaluation” about the (WHO)-coordinated international health response to Covid-19. A resolution drafted by the EU will be presented at the annual meeting of WHO members this week.
START TRADINGLQDFXperts – Economic recovery has a long way to go
Investor optimism about the re-opening of economies around the world lifted commodity prices and exporters’ currencies. Tension between the United States and China tempered the overall mood and kept a lid on broader gains.
EUR/USD stayed close to the 108 level. GDP numbers have been soft, reflecting deteriorating conditions across the Eurozone due to the pandemic. The dollar has been largely range-bound, with its safe-haven appeal keeping it well supported overall.
GBP/USD had a gloomy week, recording sharp losses and falling 2.4%. The British economy contracted in Q1 and the manufacturing and services sectors are struggling. Sterling is the worst-performing G10 currency so far this month. It has fallen more than 2.2% against the dollar since the end of April.
Dollar/yen managed a small gain for the first time in six weeks. Investors will be keeping an eye on Japan’s GDP for Q1, which will probably decline by 1.1%. Both currencies are safe-havens assets in times of trouble. So, there is no surprise that USD/JPY has remained relatively steady since late March.
The Aussie slammed last week, as AUD/USD declined by 1.8% following job reports and huge job losses. Australia is very dependent on trade with China so the China slowdown has taken a heavy toll on the Australian economy. In the near-term, the outlook for the Australian dollar is negative.
The Canadian dollar fell 1.3% last week, erasing the gains seen in the previous week. USD/CAD closed the week just above the 1.41 level. The outlook for the Canadian dollar remains negative in the near term. Economic conditions in Canada remain weak. If this week’s inflation and retail sales data misses expectations, USD/CAD could gain ground.
In commodity markets, the flood of liquidity from central banks along with record-low interest rates helped gold to climb a seven-year peak.
The week ahead – Economic recovery has a long way to go
Purchasing Managers’ Index surveys due across major economies later this week offer the next insight into the outlook about the economic recovery.
- On Tuesday (19.05) the RBA Monetary Policy Meeting Minutes will provide details of the policy meeting earlier this month. At that meeting, policymakers held the cash rate at 0.25%, noting the uncertainty over the outlook for the economy. Also on Tuesday investors are waiting for the UK Employment Report. Despite the mass lockdown due to Corvid-19, the British labor market remains relatively unscathed. Wage growth dipped to 2.8% in February, down from 3.1% in the previous release. This marked the lowest gain since August 2018.
- On Wednesday (20.05), investors expect the UK Inflation Report and the Eurozone Inflation.Analysts are bracing for disastrous job numbers for April, as the lockdown has left millions of employees unable to work.
- Thursday (21.05) and Friday (22.05) are full of data: UK PMI, US Manufacturing PMI, Eurozone PMIs (France, Germany, Eurozone) and US Unemployment Claims. The manufacturing sector continues to point to contraction while the services sector has been in free-fall. Unemployment claims have been dropping each week. But last week’s figure of 2.98 million shows that the labor market remains severely disrupted.
Follow this week’s economic calendar.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, CNBC, FX street