GBP - Roadmap on lockdown easing
The government will release a number of papers covering the measures that each sector will be expected to take as the current restrictions are eased. There is not expected to be a timetable for ending the lockdown. However, Boris Johnson has promised a ‘roadmap’ this week. We expect to see an update by Thursday when the current lockdown order expires. There are teams in the UK and the US making progress on a Covid-19 vaccine. There is a call for global leaders to approve the financing of further research.
On Thursday, the Bank of England Monetary Policy Committee will give a policy update. This will include the latest Monetary Policy Report and a briefing. The MPC is expected to leave policy unchanged for now. It may make some adjustments to its asset purchase programme. A key message is likely to be that the Bank of England will offer more support to the economy if needed. It will also release an interim financial stability report.
The final reading for the April services PMI is expected to be revised down slightly. The April construction PMI is likely to have dropped below 20 in a similar vein to the other PMIs. It is likely that the GfK consumer confidence measure will be revised up slightly. Whilst still at very low levels, a slight bounce would reflect hopes of an easing in lockdown restrictions.
GBP/EUR - 1.1379
GBP/USD - 1.2436
EUR - ECB introduce new loans
The global number of confirmed coronavirus cases continues to increase. However, as the pace of the pandemic’s spread has peaked, more countries are either easing lockdown restrictions or planning to soon. France, Italy and Spain have all laid out programmes to ease restrictions from early May. The ECB introduced a new pandemic emergency loan scheme and lowered the interest rate on its lending scheme. In the US, a state-by-state approach is being taken with some already announcing a loosening of restrictions.
Eurozone GDP fell by 3.8% in the first quarter. Final readings for Eurozone manufacturing and services are expected to be unchanged. These showed big drops in activity during April. March industrial production for France, Germany, and Italy and Eurozone retail sales will give more insight into the economic downturn. The European Commission is scheduled to publish updates of its economic forecasts on Thursday. This will likely see big downgrades to growth estimates.
EUR/USD - 1.0929
EUR/GBP - 0.8788
USD - Fed left policy
Despite profit warnings from some tech companies, it was another good week for equities with a continued recovery from the mid-March lows. Markets seem prepared to weather very weak near-term economic data with the possibility of a second-half rebound. Last week, the US Fed left policy unchanged but promised further support if necessary. Possibly most crucial for markets is the promise from central banks that policy will continue to be very loose for a long period of time. This gives asset prices the ongoing support of low interest rates and ample liquidity.
Last week US GDP dropped by 4.8% in the first quarter. This week, we expect to see more evidence of the huge near-term slump in economic activity. The main data is Friday’s US labour market report which is expected to show a monthly fall in employment of over 20 million for April. The unemployment rate will move to a multi-year high above 16%. Weekly initial jobless claims are continuing to increase, though slower than a few weeks ago. The ISM non-manufacturing index is also likely to have fallen very sharply in April.
GBP/USD - 1.2436
EUR/USD - 1.0929
4 May, 2020