Forex Weekly Outlook – Economic downturn deepens as major economies in decline

Economic conditions continue to deteriorate, as Covid-19 has caused economic havoc across the globe. Germany, the eurozone and the UK are expected to show sharp declines in first-quarter GDP. 

The Bank of England remained in neutral gear, maintaining the Official Bank Rate at 0.25%, as expected. The services sector is in free-fall, as the Services PMI slipped to 13.4 in April, down sharply from 34.5 a month earlier. There was no relief from the construction industry, as Construction PMI slowed to 8.2, down from 39.3 points. In Canada, employment numbers were by no means strong, but managed to beat the forecasts. The economy lost some 1.99 million jobs in April, but analysts had projected a loss of 4.0 million. The unemployment rate jumped from 7.8% to 13 percent. The Australian central bank maintained rates at 0.25%, as expected. In the rate statement, policymakers acknowledged the severe economic conditions but sounded hopeful that a global recovery will start later in the year. In the eurozone, German and eurozone services PMI pointed to sharp contraction, as the services sector is reeling.

In the U.S., unemployment claims came in at 3.16 million, down from 3.8 million a week earlier. This brings the running total to a staggering 33.4 million. Nonfarm payrolls dropped by a record 20.5 million in April, slightly below the estimate of 22.4 million. The unemployment rate jumped to 14.7%, up from 4.4% a month earlier. There was some good news as well, as wage growth shot up 4.7%, crushing the estimate of 0.5 percent.

1. U.S. Inflation: Tuesday, 12:30. The figures for April will likely show inflation remains at low levels. The headline reading is expected at -0.7%, while the core monthly estimate stands at -0.2%.
2. British GDP: Wednesday, 4:30. The quarterly GDP reading for Q4 in 2019 slowed to 0.0%, down from 0.3% in the previous quarter. Analysts are braced for a contraction of 2.5% in Q1 of 2020. Monthly GDP showed that the economy contracted by 0.1% in February, and the estimate for March stands at a staggering -7.9%, as Covid-19 is expected to have caused a huge jolt to the British economy.
3. U.S. Unemployment Claims: Thursday, 12:30.  Jobless claims are running at over 30 million, as the U.S. labor market is in disarray. The indicator has been slowly falling, but last week’s reading of 3.1 million was brutal.
4. Australian Jobs Report: Thursday, 1:30. Analysts are bracing for disastrous job numbers for April, as the lockdown has left millions of employees unable to work. The economy is expected to shed a staggering 550 thousand jobs, while the unemployment rate, which came in at 5.2% in March, is expected to soar to 8.3 percent.
5. BoC Financial System Review: Thursday, 14:30. The Bank of Canada publishes its overview of the financial system twice a year. Apart from data about the banks’ situation, the publication also includes economic data. BoC Governor Stephen Poloz will host a follow-up press conference.
6. U.S. Retail Sales: Friday, 12:30. Consumption consists of 70% of the American economy. In March, headline sales fell by 8.7% and the volume of core sales fell by 4.5%. April is expected to be a disaster, with headlines sales expectations at 11.0% while core sales are projected to slide by 8.0%.