European shares and US index futures rose Thursday morning with sentiment boosted by a surprise rise in China’s exports, which offset concerns over company earnings and weakness in macro data elsewhere (see data recap below). Market participants are hoping to see a similar bounce in data for other major economies once lockdown measures are eased. However, I continue to think that that the greater risk is for equities to fall back from around current levels than to continue to new highs for the year. Most of the incoming macro data continue to reveal that the damage from Covid-19 is worse than expected, reducing the likelihood we will see a V-shaped economic recovery when the lockdown measures are mostly lifted. There is also the risk that the virus could start spreading again just when things start to go back towards normal again. Hopefully this won’t happen, but there is always the risk.
Bank of England warned of biggest recession on record as policy was kept unchanged this morning. Interest rates remained at 0.1% in a unanimous vote although two policymakers unexpectedly voted for an increase in QE by £100bn to £300bn. Still, the pound rose in the immediate aftermath of the rate decision ahead of Governor Andrew Bailey’s speech. GBP/USD jumped to hit the key 1.2420 resistance level before easing lower again.
Norges Bank cut interest rates to zero as the central bank tries to weather the storms brought about by the economic impact of coronavirus and the collapse in oil prices. The central bank’s governor said it was possible to go below zero but doesn’t believe it will be needed for now.
Turkish Lira as fallen to fresh record low against the dollar – it is worth keeping an eye on the USD/TRY as further weakness for the TRY could exacerbate overseas dollar funding worries and have repercussions for other markets, including other EM currencies, equities and gold.
Data recap:
- Chinese exports 3.5% rise in April, confounding expectations for a sharp fall, as factories restarted production after the coronavirus lockdown
- German Industrial Production had historic plunge in March, crashing 9.2% m/m against -7.3% expected. Industrial output fell 11.6% y/y
- French Industrial Production -16.2% m/m vs. -12.7% expected
- Italian Retail Sales -20.5% m/m vs. -15.0% expected
Coming up:
- US Challenger Job Cuts at 12:30 BST
- US unemployment claims at 13:30 BST – expected to show another massive rise to the tune of 3m after recording 3.84m in the previous week
- ECB President Lagarde Speaks at 15:00 BST
GBP/USD is our featured chart as we transition to the US session later and ahead of the upcoming employment data releases from across the pond. The cable has hit 1.2420 key resistance (old support and trend line) and has had a good reaction from this level. The bears need to defend this zone in the afternoon otherwise we could see a nice recovery. On the downside, the bulls need to defend 1.2320 key support/rising trend line – a potential break below here could expose low 1.20s again.
