Sentiment in manufacturing fell in April as lockdowns put the brakes on factory activity, leading to steep declines in output and demand, while the outlook looked gloomy.
Factory activity was damaged across the world in April, according to business surveys. Lockdowns all over the world to contain the new coronavirus pandemic froze global production and cut back new orders.
A gauge from the United States showed manufacturing activity plunged to an 11-year low in April. Final manufacturing PMI for the euro zone sank to 33.4, its lowest since the survey began in mid-1997. It was a similar story from UK when its PMI showed manufacturers suffered their biggest fall for at least three decades.
In a bid to combat the impact of the lockdowns, central banks and governments have stepped in to help, with programmes of direct state aid
The US Congress has already passed trillions of dollars in unprecedented legislative relief in response to the pandemic. But the scale of the devastation that the crisis has inflicted has led lawmakers to consider another round of aid.
Further, investors are worrying that U.S.-China trade war will resume this time over the origin of the novel coronavirus. U.S. President Trump and Secretary of State Pompeo have pinned the blame for the pandemic on China.
The global economy is expected to suffer its steepest contraction on record this year as supply chains have been massively disrupted.
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News about supply-chain disruptions come at a time where global growth expectations are already fragile. May began with the threat of a fresh trade-war between the world’s two biggest economies while economic conditions continue to deteriorate.
EUR/USD posted strong gains last week, climbing 1.4%. This week’s economic numbers are expected to be dismal, reflecting deteriorating economic conditions across the Eurozone triggered by the Covid-19 outbreak. This could weigh on the single currency.
GBP/USD gained just over 1% last week, as the pair recovered the losses sustained a week earlier. Corvid-19 has sent the factory activity and services industries reeling, and economic conditions remain weak. The U.S. dollar remains a safe haven for jittery investors, which could mean trouble for the British pound.
Dollar/yen dipped slightly last week, as the pair broke below the 107 line. The U.S. dollar has been looked at as a safe haven in the current crisis. But the Japanese yen has managed to hold its own against the greenback. USD/JPY has been steady in recent weeks, and this trend could continue in the upcoming week.
The AUD/USD remained steady for a third successive week. The Australian economy is heading into its deepest downturn since the Great Depression. Also, risk sentiment soured after U.S. President Donald Trump threatened to impose new tariffs on China over the coronavirus crisis.
The Canadian dollar posted gains during the week but surrendered these gains on Friday, as USD/CAD closed the week just below the 1.41 level. The outlook for the Canadian dollar remains negative as it suffers from the risk-off move.
The week ahead – Factory activity globally severely halted
Last week, major economies reported sharp contractions in first quarter growth. As well, PMIs pointed to sharp slowdowns in the factory activity and services sectors.
- On Tuesday (06.05) investors are waiting for the RBA Rate Decision. The bank is likely to maintain its current monetary policy. At the April meeting, the RBA maintained the cash rate at 0.25 percent.
- Wednesday (07.05) is the day that investors expect Eurozone Services PMIs. Spain, Italy, French, German, and final euro-zone number will tell if April numbers are worse, as widely expected. March was an absolute disaster for sure, as the services sector contracted sharply.
- On Thursday (08.05), investors await for the BoE Rate Decision whereby the UK central bank will probably maintain the official bank rate of 0.10%.
- On Friday (09.05) the spotlight turns to the US non-farm payrolls. The April numbers will probably be a disaster, with nonfarm payrolls projected to come in at -21 million. The unemployment rate is expected to soar to 16%.
Follow this week’s economic calendar.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, CNBC, FX street