April 23, 2020
EZ PMIs near single digits
Gold above 1700oz
Nikkei 1.52%% Dax -0.28%
UST 10Y 0.61%
Asia and the EU
EUR EZ PMI 17 vs. 31
GBP UK PMI Services 12.3 vs. 29
North America Open
USD Jobless Claims 8:30
USD PMI Composite 9:45
USD New Homes 10:00
Shockingly low PMI readings out of Europe soured investor sentiment and turned equities lower sending EURUSD below the 1.08000 figure in early European dealing.
Markets were braced for horrid data given the widespread lockdown across the continent, but today’s readings came in below even the most bearish of prediction as PMIs in France and UK flirted with a single-digit result.
The weakness was most obvious in the services sector with EZ services printing ar 11.7 vs. 22.8 and UK reports posting a 12.7 reading vs. 27.8 expected. In retrospect, the data should not have been a surprise as almost all service activity in Europe came to a screeching halt due to near continent-wide lockdowns that closed all but non-essential activity. Still, the reality of the near complete collapse of demand sent FX traders scrambling for the sell button with EURUSD trading below the 1.0800 figure in the morning Frankfurt dealing.
The market focus in FX turns to the European Council meeting as members try to come to an agreement on stimulus plans of more than 2 Trillion euros with Southern economies demanding pan-European guarantees for fresh financing while Netherlands and Germany continue to resist them. The economic crisis caused by the pandemic is truly putting the idea of European union to the test as the model of a monetary union but fiscal separation looks to be on the verge of breaking.
The Northern European strategy of playing for time while hoping for ECB to monetize the individual country issuance will not work this time. The crisis is too great. The demand destruction is too massive and risk assumption must be so enormous that it can only be done on a collective pan-Europen level in order to have any chance of success.
With time clearly against them, EC policymakers cannot “kick the can down the road” this time and if today fail to produce any concrete results risk aversion flows will increase putting fresh downward pressure on the euro as short target the 1.0700 level.
Meanwhile, the tumult in Europe is adding to the bid in gold which traded at a high of 1725/oz as investors continue to move to hard assets as a hedge against economic uncertainty. Even bitcoin which has hardly been a bastion of strength in this volatile markets appears to be finding support at the $7000 level as investment posture is turning increasingly defensive
In North America today the focus will turn to Jobless claims once again but with more than 20M claims already filed in the past 2 weeks, the rate of increase may taper off providing a modicum of support for the bulls. So far equity markets have looked through the horrid data on the assumption that lockdowns will soon begin to ease and economic activity will return to normal, but the longer we remain in this state of limbo as new cases decline but at a painfully slow rate, the harder it will be for the bulls to push equity prices higher.