Last week Sterling manged to reclaim some of the losses of recent weeks as comments from various BoE officials helped taper concerns of the prospect of negative interest rates ahead of the economy preparing to reopen.
Today, schools reopen their gates to a limited number of year groups, car showrooms and open-air markets are due to reopen as are non-essential retailers in a couple of weeks’ time. This could give the economy a further boost. However, gains maybe limited as UK-EU trade talks are scheduled.
Across the Channel we saw the European Commission (EC) announce a 750-billion-euro ($824 billion) plan to prop up the EU economies hammered by the coronavirus crisis. Under the proposal, the EC would borrow the funds from the market. The EC will disburse two-thirds of this in grants and the rest in loans, with much of the money going to Italy and Spain, the worst affected by the pandemic.
In the meantime, the US Dollar was weaker as the “risk on” tone increased as the EC released their stimulus measures and the easing of lockdown. However, US-China geopolitical tensions could have an impact on market sentiment if we see this increase.
This week the calendar is packed with both political events and economic data taking centre stage. The UK will be focus on the tone of the trade talk talks surrounding the future relationship between the nation and the EU. These will be led by the UK’s David Frost and the EU’s Michel Barnier, with the end-June deadline looming. The US will be firmly focused on the labour data which could report the peak unemployment rate of 20%, the highest since the Great Depression. However, there are signs that this could be the peak as the US claims fell for the first time during the pandemic to 21.1 million for the week ending 16 May from 24.9 million in the prior week.
- US ISM Manufacturing
In the UK, the market will focus on the loosening of lockdown restrictions as schools, car showrooms, open-air markets and competitive sports resume. In terms of economic data, the US ISM manufacturing data is due for release with a focus on economic activity and the employment component as lockdown eases.
- UK-EU trade talks resume
Brexit concerns have grown in recent weeks as fears of a cliff face “no deal” have re-emerged. The UK has said it will not ask for an extension to the transition period. Both sides, however, reportedly remain apart on some key matters especially relating to a level playing field in return for access to the single market. The EU meeting is due to take place in the middle of the month, with the deadline for an extension at the end of the month.
- US ADP Employment Report
As scheduled monthly the US ADP employment report is released before the official US labour figures and provides some signposting for how the data could look on Friday. However, given the large discrepancies that have been seen historically it is largely discarded. The figure is expected to retract from the 20m plus job losses to 9.5m job losses; that said this is still a huge figure.
- ECB meeting
The ECB launched its Pandemic Emergency Purchase Programme (PEPP) in March, pledging to buy €750bn of bonds under the scheme this year and to continue until the “Covid-19 crisis phase is over”. During the minutes of the last meeting, policymakers stated they “stand ready to adjust the PEPP and potentially other instruments if it saw that the scale of the stimulus was falling short of what was needed”. It is expected to announce a €500bn increase to the PEPP whilst interest rates are forecast to be unchanged.
- US labour data
The headline figure of the week will be the US labour data containing the Non-Farm Payrolls and the unemployment rate. Last month’s US Non-Farm Payrolls plunged by 20.5 million and the unemployment rate jumped up to 14.7%. Given the easing of restrictions, it is expected that this month could be the peak in unemployment. A further drop in payrolls of circa 10 million in May is expected and a rise in the unemployment rate to 20%, the highest since the Great Depression.
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