Forex Weekly Outlook May 4-8 – Economic Meltdown Felt Across the Globe

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Economic conditions continue to deteriorate, as Covid-19 has caused economic havoc across the globe. Last week, the U.S. and major eurozone economies reported sharp contractions in first quarter growth. As well, PMIs pointed to sharp slowdowns in the manufacturing and services sectors.

In the UK, the Services PMI plunged in March, dropping to 12.3 points, down from 35.7 a month earlier. On the inflation front, Eurozone CPI came in at 0.7%, while the core reading showed a gain of 1.0 percent. This confirmed the initial readings.

Corvid-19 ravaged European economies in Q1 – France’s economy declined by 5.8%, Spain by 5.2% and the eurozone by 3.8 percent. On the inflation front, German CPI accelerated to 0.3% in April, up from 0.1%. Eurozone inflation dipped to 0.4%, while the core reading came in at 0.9 percent. German retail sales fell by 5.6% in March, its sharpest decline in 2007. The ECB held its main financing rate at 0.00% at its monthly policy meeting. ECB President Christine Lagarde didn’t mince words, saying that the eurozone economy would be in  “unprecedented decline” into 2021.

In the U.S., the initial release for GDP in Q1 reflected the economic havoc caused by Covid-19. The decline of 4.8% was worse than expected, as the forecast stood at 4.0 percent. Unemployment claims fell for a fourth straight week, dropping to 3.8 million. Still, this was higher than the forecast of 3.5 million. The Federal Reserve’s policy statement reiterated that the Fed would use its “full range of tools” to stabilize the battered economy, but also warned about “considerable risks” to the economy over the next year or more. At the meeting, the Fed maintained the benchmark rate, which is close to zero.
Canada’s economy edged down to 0.0% in February, its lowest level since October 2019. This figure missed the estimate of 0.2 percent.
  1. Eurozone Manufacturing PMIs: Monday: 7:15 for Spain, 7:45 for Italy, final French figure at 7:50, final German one at 7:55, and final euro-zone number at 8:00. Markit’s forward-looking purchasing managers’ index for Spain’s manufacturing sector has been in contraction mode for nine of the past 10 months, and the trend is expected to continue in April, with an estimate of 35.0 points. In Italy, the PMI is projected to slow to 30.3 points. The German indicator has been in contraction since December 2018 and is expected to fall to 34.4 points. The eurozone PMI slipped to 44.5, its weakest reading since 2012. The estimate for April stands at 33.6 points. France slipped to 43.2 and the estimate stands at 31.5 points.
  2. UK Construction PMI: Monday, 8:30. The construction sector plunged to 39.3 in March, down from 52.6 a month earlier. This reading points to sharp contraction and was the lowest reading since 2009. The downturn is expected to continue, with a forecast of 21.0 points in April.
  3. .RBA Rate Decision: Tuesday, 4:30. At the April meeting, the RBA maintained the cash rate at 0.25 percent. No change is expected at the upcoming meeting, but it will be interesting to see the stance of the bank in the rate statement, given the sharp economic deterioration due to Corvid-19.
  4. UK Services PMI: Tuesday, 8:30. The PMI slowed to 34.5 in March, down from 53.2 in the previous release. Analysts are bracing for a miserable reading of just 12.0 points, which would point to a huge contraction in the services sector.
  5. U.S. ISM Non-Manufacturing PMI: Tuesday, 17:00. The PMI has been in positive territory since 2009, with readings above the 50 level, but analysts are bracing for a sharp contraction in April, with an estimate of 37.5 points.  
  6. Eurozone Services PMIs: Wednesday, 7:15 for Spain, 7:45 for Italy, final French figure at 7:50, final German one at 7:55, and final euro-zone number at 8:00. March was an absolute disaster, as the services sector contracted sharply. The German PMI slipped to 31.7, down from 52.5. This was the first reading below the 50-threshold since 2012. The eurozone indicator slid to 26.4, down from 52.6 points. The Spanish, Italian and French numbers were also sharply lower. The April numbers are expected to be even worse – 10.0 in Spain, 10.4 in France, 15.9 in Germany and 11.7 in the eurozone.
  7. BoE Rate Decision: Thursday, 6:00. The BoE is expected to maintain the official bank rate of 0.10%, which the bank cut the rate from 0.25 percent in March. Investors will be keeping a close look at the monetary policy summary, which may contain hints of future monetary moves.
  8. U.S. Unemployment Claims: Thursday, 12:30. U.S jobless claims has been dropping, but remains at staggering levels. The indicator came in at 3.8 million last week and the upcoming estimate is 3.0 million.
  9. Canadian Ivey PMI: Thursday, 14:00. The Canadian economy is contracting, and this was reflected in the March reading, as the PMI slowed to 26.0, down from 54.1 points. Analysts had projected a reading of 50.1, just above the 50.0 level, which separates contraction from expansion. The April reading stands at 24.3 points.
  10. RBA Monetary Policy Statement: Friday, 1:30. The quarterly report by the central bank has, at times, provided hints for future monetary policy. It provides a broader view of the economy than the short rate statement. Any hints about changes in interest rates will be scrutinized by markets.
  11. Canadian Employment Report: Friday, 12:30. Analysts had warned that March job numbers would be bad, but the loss of 1.0 million jobs was much worse than the estimate of a loss of 427 thousand. The April forecast is a staggering 5.0 million. Investors will be hoping for an improvement in the April release. The unemployment rate jumped to 7.8%, above the estimate of 7.4%. The reading was sharply higher than the previous reading of 5.6 percent. Analysts are projecting a sharp rise in unemployment, with an estimate of 20.0 percent.
  12. U.S. Employment Report: Friday, 12:30. The April numbers are expected to be a disaster, with nonfarm payrolls projected to come in at -21 million. The unemployment rate is expected to soar to 16.0 percent.

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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.

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