FX & market recap:
Major currencies have barely moved overnight as equities hold the gains made into yesterday’s US close. Stocks are down marginally for the week as a whole. Last night’s Fed speakers (all steered clear of the debate on negative rates, but all suggested a v‐shaped recovery was unlikely as stressed the need for fiscal support. Reports suggest Brexit talks this week have made little progress, with both sides suggesting the other is making unreasonable demands.
Day ahead: April retail sales top a busy US data agenda today. The 12% m/m fall expected would leave sales down 20% cumulatively through March and April. April industrial production is likely to show similar weakness. Today also brings the first US survey indicators for May in the form of the Empire survey and UoM consumer sentiment.
Canadian dollar highlights:
USD/CAD pushed higher yesterday on the back of weaker equity markets. USD gains have stalled in the 1.41 area, however, CAD has picked up a little support in late morning European trade to edge back to the upper 1.40s overnight. Crude oil gains are CAD-supportive but the bigger pull on the currency will come from risk appetite in the near-term. Today’s April existing home sales report should continue to be weighed down by the COVID‐ 19 shutdown.
We could see a weaker than expected German Q1 GDP number that may push down the Q1 EZ GDP estimate. Uncertainty remains very high, given the COVID-19 effect. We also have a Eurogroup meeting today but any meaningful announcement seems unlikely. EUR/USD to stay around the 1.08 level today.
British pound highlights:
Little progress has been made in the UK-EU trade negations so far, with both sides reported as being far away on the conditions of the possible trade deal while the UK continues to refuse any extension of the transition period. Most view the GBP market as overly complacent to such a risk. We expect pressure on GBP to grow going into the June deadline for the extension of the transition period. Non-extension would likely bring significant downside risk to the GBP.
Asia Pacific highlights:
Japan’s Q1 GDP data (Sunday night/Monday morning) are expected to show only a moderate decline (‐1.1% q/q), but this follows a very sharp fall in Q4 that reflected October’s consumption tax hike and, were it not for the coronavirus impact, expectations would otherwise have been for a strong rebound. It will be hard to draw any conclusions on how hard Japan has been hit without seeing a run of indicators for Q2 and the Q1 data are therefore likely to have limited implications for BoJ policy in the near‐term.