Forex Weekly Outlook May 18-22 – Weak GDP Numbers Point to Sputtering Global Growth

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Covid-19 has caused economic havoc across the globe. Although lockdown containment rules have started to ease, economic numbers, such as GDP and employment remain grim.

In the U.K, first-quarter GDP declined by 2.0%, the first decline in three quarters. Analysts had expected a sharper decline of 2.6 percent. Monthly GDP plunged by 5.8% in February, but this beat the forecast of -7.9 percent. In Germany, the economy contracted by 2.2% in Q4, after a loss of 0.1% in Q3. Eurozone GDP also slipped, as the second-estimate reading declined by 3.8%, confirming the initial read. German CPI accelerated to 0.4% in April, up from 0.1% a month earlier. In Australia, employment numbers were dismal in April. The economy shed 594.3 thousand jobs and the unemployment rate soared to 6.2 percent, up from 5.2% a month earlier.

In the U.S., inflation headed south in April, as the economy continues to buckle under the weight of the Corvid-19 pandemic. CPI declined by 0.8%, down from -0.4% a month earlier. The core read fell by 0.4%, down from -0.1% in the previous release. Both figures missed their estimates. Unemployment claims continue to fall and dropped below 3 million last week, with a release of 2.98 million. Still, this missed the estimate of 2.5 million.

  1. RBA Monetary Policy Meeting Minutes: Tuesday, 1:30. The RBA minutes will provide details of the policy meeting earlier this month. At that meeting, policymakers held the cash rate at 0.25 percent, noting the uncertainty over the outlook for the economy.
  2. UK Employment Report: Tuesday, 6:00. 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. The downturn is expected to continue in March, with a forecast of 2.7 percent.  Unemployment claims actually fell in March, from 17.3 thousand to 12.1 thousand. Analysts had projected a huge decline of 170 thousand. We will now receive the April data.  The unemployment rate is expected to jump to 4.4%, up from 4.0 percent.
  3. UK Inflation Report: Wednesday, 6:00. Consumer inflation continues to fade, falling to 1.5% in March. This was down from 1.5% and was the weakest reading in four months. The core figure dropped from 1.7% to 1.6%. In April, the projection is 0.9% for the headline reading and 1.4% for core CPI.
  4. Eurozone Inflation: Wednesday, 9:00. Inflation has fallen sharply as the eurozone economy has been paralyzed by the Covid-19 outbreak. The initial April read fell to 0.4%, and the final reading is expected to confirm this figure.
  5. UK Manufacturing PMI: Thursday, 8:30. The final reading for April came in at 32.6, shy of the estimate of 42.0. The initial read for May is projected to slip to 35.1 points. The 50-level separates contraction from expansion.
  6.  UK PMI: Thursday, 8:30. Markit’s forward-looking indices for the UK economy culminate in the publication for the services sector. The country’s largest sector has been in free-fall, as it declined to 13.4 points in April. The initial reading for May stands at 20.0 points.
  7. U.S. Unemployment Claims: Thursday, 12:30. Unemployment claims have been dropping each week, but last week’s figure of 2.98 million shows that the labor market remains severely disrupted. Another high figure is expected, with an estimate of 2.4 million.
  8. US Manufacturing PMI: Thursday, 13:45. The manufacturing sector continues to point to contraction. Manufacturing PMI came in at 36.1 in April, and the initial read for May stands at 37.5 points.
  9. Eurozone PMIs: Friday, 7:15 in France, 7:30 in Germany, and 8:00 for the whole eurozone. The services sector has been in free-fall, with sharp contractions reported across the eurozone in April. The German PMI came in at 16.2, the eurozone release was 12.0, and the French reading stood at 10.2. The initial estimates for May are 26.2 for Germany, 23.9 for the eurozone and 28.8 for France. The manufacturing sector is in better shape, but still showing contraction, with readings well below the 50-level, which separates contraction from expansion. The German PMI came in at 34.5, the eurozone at 33.4 and the French release at 31.5. The forecast for the initial reads for May are 39.0 for Germany, 38.0 for the eurozone and 35.6 for France.

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Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.