FX & market recap:
Chairman Powell confirmed the firm stance of the Fed against additional rate cuts but delivered a very downbeat view on the US economy, all of which contributed to keep the dollar supported. Fedspeak will stop today and the only key release in the calendar is initial jobless claims, expected to be c.2.5 million. This would confirm a slowing trend in claims, but market reaction to jobs data has been relatively muted lately and global sentiment should primarily remain a function of whether US re-opening plans will continue despite recent warnings from top health officials.
The data calendar is light in G10 today with only US jobless claims on tap. In Canada, we have the BoC’s Financial System Review and Governor Poloz’s press conference.
Canadian dollar highlights:
The BoC’s Financial System Review should provide some information on household finances into the early stages of the COVID‐19 lockdown. What the BoC has highlighted as vulnerabilities for some time—elevated household debt and high house prices in some markets—are exactly what can make a downturn more pronounced.
The unprecedented loss of jobs has been met by unprecedented measures to ensure that the financial system continues to function properly. While Poloz is likely to conclude that the financial sector is robust enough to cope with the present testing conditions, markets will be focused on any broader assessment of the state of the Canadian economy and any hints towards further easing.
The ECB’s Economic Bulletin will provide some colour on the Bank’s economic assessment, but with the easing of lockdown measures having intensified in the past weeks, the estimates may prove outdated, and market impact limited. ECB Vice President De Guindos will speak today after suggesting yesterday that the worst of the contraction in the Eurozone is behind us (albeit highlighting uncertainty around the recovery). Meanwhile, Italy unveiled the details of a fresh EUR 55bn fiscal stimulus plan. Lacking clear catalysts for the time being, EUR/USD may stay capped on USD strength.
British pound highlights:
As sterling battles with uncertainty around UK’s re-opening plans, today’s speech by BoE Governor Bailey should take centre stage. Markets will mostly look for hints about the timing (June appears to be the designated meeting) and size (a lot more uncertainty here, unlikely to be clarified just yet) of any extension of QE. The Governor already hinted that more QE may be on the way. Also, the question of negative rates may be raised and while most don’t expect the Governor to categorically rule them out.
Asia Pacific highlights:
AUD - Employment fell by 594k in April, in line with consensus expectations, with full time job down 374k and part time down 221k. The headline unemployment rate ‘only’ rose to 6.2%, well below consensus expectations of 8.2%, but most will take little comfort from this as the details of the report paint a far more sobering picture.