Sentiment Improves In Hopes For A Peak


The global number of confirmed coronavirus cases global continues to rise but there are growing signs across a number of countries that the pace of increase is slowing. This is fuelling speculation that lockdown restrictions will soon be eased. Several European countries including Austria, Denmark, Italy and Norway have already announced some easing. Germany joined this week as it was confirmed that some ‘non-essential’ shops will re-open next week and schools will start to open in early May. Meanwhile, US President Trump said that 29 states could open up “relatively soon” and outlined a three-stage guidance plan for Governors to follow in ending lockdowns. The UK government, however, has confirmed that the current restrictions will continue until at least 7th May. Equity markets are ending the week on a positive note buoyed by hopes of a relatively early end to lockdowns. That has more than offset any negative impact from weak company profit reports, dire economic data and predictions of big nearterm declines in economic activity. Markets next week are likely to continue to be pulled between these contrasting pressures of disappointing news about first half of 2020 activity as the earning season continues against hopes for second half improvement. Meanwhile, in currency markets sterling has continued to edge up from its early March lows.


The coming week is a busy one for UK economic data. March retail sales (Fri) and consumer price inflation (Wed) will provide the first official readings on the initial economic impact of the pandemic. Retail sales will probably have been supported by a surge in grocery shopping as households stockpiled. That could lead to a rise in retail sales (ex-auto fuel) despite signs that spending on many items has fallen sharply. The inflation data will have been collected too early in the month to show the impact of the lockdown. However, CPI inflation is likely to have fallen primarily due to the drop in oil prices. We look for an annual rise of 1.5% (down from 1.7% in March). Inflation seems set to fall further in the coming months and is expected to drop below 1.0%. Tuesday’s labour market report mostly only covers the period up to February and so will reveal little about the impact of the pandemic. However, timelier unemployment claims data for March, may point to the likelihood of a substantial rise in unemployment in the next few months. Thursday’s manufacturing and services PMIs for April will provide some of the first of the extent to which economic activity has continued to weaken this month. We expect further declines in both, consistent with a sizeable fall in GDP. The CBI industrial survey (also Thu) will provide a further update on the pressures on the factory sector. Finally, the April GfK consumer confidence measure (Fri) is expected to post another sizeable decline.


This week’s busy US economic data calendar showed big falls in economic activity across a range of sectors in March and surveys for April point to further sizeable declines. Next week’s calendar is lighter. The Markit PMI indicators are forecast to show a further slump in both manufacturing and services activity. These indicators normally get less attention from markets than the more established ISM survey but are currently closely watched because of their timeliness. Weekly initial jobless claims have risen by an unprecedented 22 million over the past four weeks pointing to the likelihood of a huge jump in the unemployment rate in April. There were some signs in this week’s data of the pace of increase slowing but another big number is expected in the coming week to push the five-week aggregate close to 30m. Housing sales data for March are also likely to have fallen sharply. No policy comment from Fed officials is expected next week as they will be in their silent period ahead of the 28-29th April policy meeting. However, there are likely to be further discussion of more fiscal stimulus measures. Reports suggest that the fund to provide aid to SMEs is almost exhausted but so far Democrat and Republican politicians have failed to agree on a bill that would include a top up. The process is being complicated by the fact that Congress is not currently sitting.


A number of business surveys in the coming week will provide the first indications of Eurozone economic activity in April. With lockdown in place we expect the indicators to point to big falls in output in the near term. So we look for further declines in both the Eurozone PMIs for manufacturing (to 40 from 44.5 in March) and services (25.0 from 26.2), and in the current conditions components of the German ZEW and IFO surveys. However, we think some improvement may be seen in the expectations readings from the latter two surveys reflecting hopes that lockdown restrictions will soon start to be eased. EU leaders will meet on Wednesday to discuss the impact of the Covid-19 pandemic. Late last week, Eurozone finance ministers agreed on a package of stimulus measures to offset the negative economic impact and the leaders are likely to be asked to sign off on these. However, that agreement left out a lot of the detail including how the so called “recovery fund” will be paid for, so this still has the potential to cause issues between leaders. Discussions about the stimulus package may be complicated by it being tied into the negotiations on the EU’s upcoming seven-year Budget. The new EU President Ursula von der Leyen is reported as wanting the fund to form part of that Budget. However, some EU states may want to keep it separate to emphasise its temporary nature.

See you next week!

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None of the information in this article is, nor should be construed as financial advice. All foreign exchange transactions involve risk and you should always seek your own independent financial advice before entering into any foreign exchange transaction.

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