The FX market was not at its most coherent over the shortened pre-holiday week. Initially the mood was upbeat, in anticipation that the tragic Covid-19 pandemic would soon have run its course and that life would return to normal. Then the doubts set in, and then they evaporated again. Sterling found itself in no-man’s land, left behind, in turn by the safe-havens and the commodity dollars. An eventual net average loss of 0.8% left sterling level with the US dollar and cost it a fifth of a euro cent. It lost appreciable ground to the Australian and NZ dollars.
Sterling’s situation was not improved by the prime minister in the intensive care unit of St Thomas’s Hospital. In his absence the government found it difficult to avoid looking indecisive and investors were less than impressed.
The purchasing managers’ index readings on Friday provided a reminder of just how difficult life has become for the services sector in parts of Europe. On a scale of 0-100, where 50 represents stagnation and zero means annihilation, Italy scored 17.4 in March. Euroland as a whole was not a whole lot better at 26.4 and the composite euro zone reading was a dismal 29.7 (UK 36.0).
For the euro the biggest challenge was the failure of euro zone finance ministers to find common cause on joint fiscal stimulus. After a 16-hour video conference on Tuesday the Eurogroup was unable to agree on a way to provide emergency finance to the countries – particularly Italy – hardest-hit by the tragic Coronavirus. The impasse highlighted the EU’s national divisions but did not prevent it picking up a fifth of a US cent.
In the normal course of affairs the single most important US economic statistic is the monthly change in non-farm payrolls. Over the last 12 months they averaged a 150k increase. Last Friday’s figure, nominally for March, was an aberration, falling 701k. However, the timing of the data completely understated the carnage that has taken place in the US labour market. In the last two weeks 10 million people signed on unemployed and another six million are likely to have joined them in this week’s figures.
However, so inured are investors to miserable statistics that there was no reaction from the US dollar. It was unchanged against sterling and a fifth of a cent lower against the euro.
There was little to pitch at among the Canadian ecostats. Only the Ivey purchasing managers’ index was of any real relevance and it was no prettier a sight than the readings from elsewhere. The index plunged 28 points to 26.0. The Bank of Canada’s quarterly Business Outlook Survey, which was carried out “before concerns around Covid-19 intensified in Canada”, still found sentiment softening. Confidence deteriorated most among firms in energy-producing regions.
Watching the gyrations of the oil prices it was not hard to understand why that might have been. After touching an 18-year low at the end of March and rebounding by 45%, WTI crude stayed mostly between $24 and $28 during the week ahead of the OPEC+ meeting this Thursday. The Loonie matched most of the moves, in spirit if not in detail. It added two thirds of a US cent and took a cent and two thirds off the pound.
Although the data and economic news from Australia were mostly mediocre, the Aussie was the week’s top performer, strengthening by an average of 1.7% against the other majors. It took more than five cents off sterling and added one and a half US cents. The main driver for the Aussie was the same one that demoted the safe-haven Japanese yen to the back of the field. Investors found renewed confidence that things would be alright as soon as Covid-19 has vanished. It may have been premature but, ‘Fear Of Missing Out’, took risk assets and commodity currencies higher across the board.
February’s 0.5% monthly rise in retail sales was irrelevant but the downturn in international trade for the same month was at least in part a function of the shutdown in China. When the Reserve Bank of Australia left its benchmark Cash Rate unchanged at 0.25% on Tuesday it noted that “a very large economic contraction is… expected to be recorded in the June quarter and the unemployment rate is expected to increase to its highest level for many years”.
True to form, the Kiwi shared some, but not all of the Aussie’s fate. This week it had a positive effect, taking the NZ dollar an average of 0.9% higher against its peers. It added one US cent and took three and a half cents off sterling.
NZ data showed a 3.9% monthly fall for electronic card retail sales in March and a 1.2% fortnightly increase in dairy prices. The most interesting number, however, was the sharp fall in business confidence. NZIER’s Quarterly Survey of Business Opinion found confidence plummeting from -21% to -70% in March. A net 16% of firms plan to reduce headcount in the next quarter.