Economic damage continues to intensify
Fears over the economic damage from coronavirus countermeasures continue to increase. There was a further surge in jobless claims as activity throughout most of the global economy slumped. The only exception was China where there was an on-going recovery from February’s slump.
Within Europe, the number of deaths in Italy and Spain increased to near 16,000 and 12,500 respectively. The total number of global cases increased to over 1.25 million with over 9,000 deaths in the US.
Market liquidity improves….
The very aggressive measures to increase dollar liquidity continued during the week with the Federal Reserve buying huge numbers of bonds and providing dollars to global central banks. The measures helped ease fears over a global financial crisis, but there were still important fears over the global outlook.
… but US dollar makes renewed gains
US economic damage continued to mount, but the higher degree of fear over the global outlook triggered fresh demand for the US dollar, especially as it remains the most liquid international currency. The dollar also gained from a lack of attractive alternatives among major currencies.
The main economic focus during the week was again on jobs. There was another huge surge in jobless claims to over 6.6 million in the week from a revised 3.3 million the previous week. This was by far another record high for claims and over 30 times levels seen before the coronavirus erupted.
The latest monthly jobs report recorded a sharp decline in payrolls of over 700,000 for March compared with market expectations of a decline closer to 100,000. There was a very sharp decline in jobs in the leisure sector and the unemployment rate increased to 4.4% from 3.5%. The claims data suggested unemployment could push towards 10% within the next 2 months.
Headline business confidence declined for March, although the downturn was less severe than expected with the headline data distorted by companies taking longer to supply orders which is counted as a positive element in the main figure.
UK business confidence data declined sharply for March with notable pressure in the services sector. There was also a sharp increase in welfare claims which suggested that the unemployment rate had already increased to at least 6%. There will, however, be no official jobless data for weeks.
Sterling weakened against the dollar, but secured a net advance to 3-week highs against the Euro before a limited correction.
The UK currency was resilient, but edged lower after reports that Prime Minister Johnson had been admitted to hospital after having testing positive for coronavirus and having persistent symptoms for 10 days.
The Euro-zone data releases had little impact with markets firmly focussed on the number of coronavirus cases. The Euro was undermined by the inability of Euro-zone governments to find a joint strategy to issue bonds.
The lack of unified response by individual Euro-zone governments also increased unease over the outlook.
China’s data recorded a sharp recovery in the domestic economy in March following the slump recorded in February, although there was some scepticism over the data.
Oil prices declined sharply following data confirming that demand for crude had collapsed due to the severe global downturn.
Prices then moved sharply higher following reports that President Trump had brokered a deal between Saudi Arabia and Russia to cut output, but volatility remained high. There was, therefore, further volatility in the Canadian dollar with net losses during the week.
Singapore relaxed monetary policy further by targeting a weaker exchange rate.