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COVID-19 Jitters Hit Early as Focus Shifts to the BoE and the Pound…

Bob Mason

Earlier in the Day:

It was yet another busy start to the day on the economic calendar on Thursday. The Aussie Dollar and the Kiwi Dollar were in action early on.

While there was plenty of attention to the numbers, the markets also considered the recent uptick in COVID-19 numbers. The threat of another wave of lockdown measures has risen in recent days.

Looking at the latest coronavirus numbers.

On Wednesday, the number of new coronavirus cases rose by 125,202 to 8,381,861. On Tuesday, the number of new cases had risen by 156,317. The daily increase was lower than Tuesday’s rise and 128,469 new cases from the previous Wednesday.

Germany, Italy, and Spain reported 2,480 new cases on Wednesday, which was up from 767 new cases on Tuesday. On the previous Wednesday, just 510 new cases had been reported. Notably, Germany reported 1,797 new cases on Wednesday. This was the first time Germany has reported more than 1,000 cases since 8th May…

From the U.S, the total number of cases rose by 23,628 to 2,232,028 on Wednesday. On Tuesday, the total number of cases had risen by 26,844. On Wednesday, 10th June, a total of 20,674 new cases had been reported.

News from China of fresh lockdown measures in Beijing was coupled with news of record spikes across six U.S states. This was later followed up with news of 10 states seeing their highest 7-day average since the start of the pandemic.

Another lockdown across U.S states would be a catastrophe. It may also spell the end of Trump’s political career…

For the Kiwi Dollar

The New Zealand economy contracted by 1.6% in the 1st quarter, following 0.5% growth in the 4th quarter. Economists had forecast a 1% contraction.

According to NZ Stats,

  • Service industries contributed the most to the drop in activity, accounting for almost half of the overall fall in GDP.
    • The hospitality industry fell by 7.8%, with the construction and warehousing industries falling by 4.1% and 5.2% respectively.
    • Household consumption expenditure fell by 0.3%. Spending on durables and non-essential goods and services weighed. A jump in spending on short life-cycle goods offset the declines.
  • This was the largest quarterly decline since a 2.4% contraction in March 1991 and larger than during the global financial crisis.

The Kiwi Dollar moved from $0.64757 to $0.64562 upon release of the figures. At the time of writing, the Kiwi Dollar was down by 0.46% to $0.6427.

For the Aussie Dollar

It was the all-important employment figures this morning.

Total employment slid by 227,700 in May, following a 594,300 tumble in April. Economists had forecast a fall of 125,000. Full employment fell by 89,100, following a 220,500 slide in April. In May, the unemployment rate increased from 6.2% to 7.1%, following on from a rise from 5.2% to 6.2% in April. Economists had forecast an unemployment rate of 7.0%.

According to the ABS,

  • The total number of people in full-time employment fell by 89,100, with people in part-time employment decreasing by 138,600.
  • Since May 2019, full-time employment decreased by 237,900 people, with part-time employment falling by 457,700 people.
  • The employment to population ratio fell by 1.1 pts to 58.4% in May 2020.

The Aussie Dollar moved from $0.68763 to $0.68401 upon release of the figures. At the time of writing, the Aussie Dollar was down by 0.60% to $0.6843.

Elsewhere

At the time of writing, the Japanese Yen was up by 0.24% to ¥106.75 against the U.S Dollar.

The Day Ahead:

For the EUR

It’s a quiet day ahead on the economic calendar, with no material stats due out to provide direction. A lack of stacks will leave the EUR in the hands of the ECB Economic Bulletin due later this morning.

We’re not expecting any positive chatter from the ECB just yet but there could be a sprinkle of hope that would give the EUR a boost.

As we have heard from the FED, however, the Eurozone economy is also likely to face a tough journey ahead. That should keep the optimism to a minimum, particularly following recent comments from ECB President Lagarde. As a reminder, Lagarde saw the Eurozone economy aligned with the ECB’s worst-case scenario projections.

Away from the economic calendar, the markets will need to keep an eye on the latest COVID-19 news and updates. This remains the biggest risk to any hopes of a speedier economic recovery.

The reported spike in new cases from Germany will be a concern.

At the time of writing, the EUR was down by 0.07% to $1.1236.

For the Pound

It’s a big day ahead on the economic calendar. While there are no material stats due out of the UK to provide the Pound with direction, the BoE is in action.

April’s GDP numbers were particularly dire, which led to BoE Governor Bailey stating that the BoE was ready and able to act. The proof is always in the pudding…

With interest rates at 0.1%, however, what will the BoE offer?

The markets are expecting an additional £100bn in QE and for the Bank to leave interest rates at 0.1%. Let’s not forget that the Bank is due to release its review of negative rates later in the year, so there should be at least a bottom on rates for now…

That £100bn in additional QE may disappoint the markets, however, which could support the Pound. After all, when you consider steps taken by other central banks of late, this would be fairly conservative. And that’s before you consider the state of the UK economy.

Whatever happens, do keep an eye on the vote count…

Also in focus, is Brexit though we do expect the BoE to be the headline of the day.

At the time of writing, the Pound was down by 0.15% to $1.2536.

Across the Pond

It’s also another relatively busy day ahead on the U.S economic calendar. Key stats include June’s Philly FED Manufacturing Index and the all-important weekly jobless claims figures.

We will expect today’s numbers to influence the Dollar and the global financial markets in general.

Economists have forecast a 1.3m jump in claims in the week ending 12th June. That is still quite a hefty number, though a downward trend from previous weeks may be well received.

The Philly FED Manufacturing Index number will need to come in ahead of forecasts, however. We saw NY State numbers impress and the Philly headline figure has much more influence on the markets.

Away from the stats, COVID-19 news and chatter from the Oval Office will also need monitoring. FED Chair Powell and the team have delivered another bazooka. What has Capitol Hill got in response?

Expect any talk of a return of lockdown measures to spook the markets.

At the time of writing, the Dollar Spot Index was up by 0.12% to 97.038.

For the Loonie

It’s a busy day ahead on the economic calendar. April wholesale sales figures are due out along with house price numbers for May. While normally of less influence, we will also expect the ADP nonfarm employment change figures to garner interest.

As always, much will depend on the mood of the market. Any risk aversion and concern over a 2nd wave pandemic and expect crude oil prices and the Loonie to struggle.

At the time of writing, the Loonie was down by 0.21% to C$1.3594 against the U.S Dollar.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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