INSIGHTS

Duncan Donald

Mon, Mar 30


The US Dollar under pressure as Covid-19 affects and Oil price creates a surge in Unemployment.

 

As countries around the world remain in lockdown and incubation fearful of the effects of the Coronavirus, we are just starting to obtain tangible information on the true impacts on the economy as last week brought the first piece of meaningful data since the virus hit Stateside. As cases throughout the US hit 137,000 with a death toll of around 2,400 it is still very much in its acceleration phase with Trump’s advisor Dr Fauci warning that the death toll could reach 100,000 - 200,000 citizens. Trump himself has had to roll back on his pledge to have the economy and business operational by Easter, and over the weekend warned that we could be in for a prolonged period of shutdown.

 

With the US economy looking to be blighted by the virus, that is not the only battle it is facing, there is also a battle going on over the oil price, with the opportunistic Saudi’s and Russia spotting the vulnerability and fragility of the US and with oil prices low due to a natural slowdown in demand following what looks set to be a significant period of grounding of Air Travel, rather than halt supply to support price, both capitalising nations have kept pumping the result of which has Oil opening the week near $20 per barrel less than half the price it costs to extract it. 

 

Considering both of these weighting factors, last week’s US Weekly Unemployment claims was expected to jump significantly from around a 100-200k print to 1 million but the actuality was 3.28 million new unemployment claims in the space of a week, a staggering number of freshly unemployed which of course weighed heavily on the performance of the US Dollar against most assets. 

 

In the stock markets there was a slight pullback as the collapse halted and we finished the week on a slightly more positive note. This has brought some perhaps optimistically call this a bottom of the markets, naturally this was aided by the $2 Trillion Dollar aid package agreed on Friday with question remaining, will it be enough? Whilst it is good to see an end to the continual rout of the markets, perhaps calling the bottom maybe a little optamistic just yet with the States still moving towards the eye of the virus storm. 

 

In Europe, we are enduring continuous lockdowns and seeing cases grow and medical resources being stretched. It is Italy which has been shown to be the primary epicenter of European infection, deaths exceeded the 10,000 mark over the weekend, but, thankfully cases are showing the signs of reduction. Despite the reductions, it looks likely that Italy will extend the lockdown period beyond the 3rd April date that was originally specified. There is growing unrest about the speed of reaction by the EU from Italians and the Spanish and it remains doubtless that the collective union will be tested to the maximum as this situation unfolds. Despite this, the Euro enjoyed one of its strongest weeks against the US Dollar last week, however the primary driver was the weaker Dollar. 

 

In the UK Prime Minister Johnson announced that he has the virus as well as some of his cabinet members, with the Virus also hitting the royal family as Prince Charles tested positive. Whilst the panic buying seems to have slowed down slightly, cases continue to grow in the UK as we move towards what expected to be the more infectious period. Similarly to the rest of the world, where major funding packages have been pledged by Government and Central Banks to support businesses and citizens, the challenge now remains actually getting that money flowing. The financial aid packages in the UK are deemed sufficient to support, but as yet they remain conceptual, with no firm or available portals yet available to access the required funding. As expected last week the Bank of England left interest rates unchanged at 0.1% having cut and announced Quantitative easing the week prior. 

 

In the week ahead again all eyes will be on the virus case numbers across the globe with this overtaking the financial data for now. 

 

The Week Ahead:

 

Monday

  •       BOE Consumer Credit – UK 
  •       Business Confidence – Eurozone 
  •       Consumer Confidence – Eurozone 
  •       Industrial Sentiment – Eurozone
  •   Dallas Fed Manufacturing Index – US 
  •   GfK Consumer Confidence – UK 

Tuesday

  •       NBS Manufacturing PMI – China 
  •       Unemployment Rate – Germany 
  •       GDP Growth – UK 
  •       Housing Prices – UK 
  •       Inflation Rate – Eurozone 
  •       Chiacago PMI – US 
  •       Home Price – US 

Wednesday

  •       Caixin Manufacturing PMI – China 
  •       Retail Sales – Germany 
  •       Markit Manufacturing PMI – IT, FR, DE, Eurozone, UK, US 
  •       ADP Employment Change – US 
  •       ISM Manufacturing Employment, PMI, New Orders – US 

Thursday

  •       Initial Jobless Claims – US 
  •       Factory Orders – US 

Friday

  •   Markit Service PMI – IT, FR, ES, DE, Eurozone, UK, US
  •   Non-Farm Payrolls – US 
  •   ISM Service PMI – US 




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