Betting on normal

There's no question that more than two months of lockdown has stretched businesses to the breaking point, resulted in the loss of millions of jobs, and shaken market confidence. However, now that the timetable for a reopening of economic activity is becoming clearer, we’re hoping to see a turnaround in sentiment. Writing in the Mail on Sunday, Boris Johnson said he expects to be largely open for business by July, which corresponds with the three-weekly government policy announcements we’ve been receiving. In large parts of the US, the path to loosening restrictions is well underway; New York has had the lowest mortalities in a month, and Bloomberg reports California is nearly 75% open now. It's not surprising that markets have opened in a more positive stance this morning.

With a data-heavy week ahead we’re hoping to hear more relatively positive news begin to come through. Still, we’re also tempering our expectations in light of the somewhat contentious issues on the docket. For one, the US Federal Reserve and the Bank of England are both deliberating negative interest rate policies—a measure they've previously dismissed as incompatible with their economies. US Fed Chairman Jerome Powell and his UK counterpart, Bank of England Chief Andrew Bailey, have kept to the traditional line; however, other policy members have recently expressed an interest in picking up the debate.  

We’re also likely to hear more about EU Commission President Ursula von der Leyen’s new bid for fund-raising powers, which aims to direct EU recovery funds. The EC is asking for the right to borrow up to €320bn to channel towards grants, rather than loans, towards imperilled EU sectors. Given northern European opposition to expanded EU fiscal powers—last week a German Federal Court deemed the ECB’s 2018 policy unconstitutional—this will be a hard sell by a bureaucratically inexperienced new Chief.

Bottom line: News headlines seem to be shifting to the more positive in light of the lightening quarantine restrictions, but it will take time for economic data to register the improvement. Forward-looking sentiment is where we are expecting early indications of renewed investment and spending appetite, but this week’s Purchasing Managers' Index data might just be too old to catch the recent shift.  Even more timely measures are central bank public speakers, who keep regular contact with their business constituencies, but again the political pressure to adopt ever looser policy measures might constrain the discussion to the theoretical. All we can do is sit tight for the moment.

The week ahead


Sterling steadily slipped over 2% against its peers last week as Brexit negotiators from both sides claimed little progress had been made in trade negotiations. With the deadline to request an extension now just over six weeks away, Brexit headlines are likely to take greater weight in Sterling price action over the coming weeks, although broader appetite for risk during the COVID-19 economic crisis won’t be going away anytime soon. What’s more, Sterling remains pinned down by interest rate markets aggressively pricing in further rate cuts after the Bank of England (BoE) claimed negative rates were a policy being examined. BoE Governor Bailey will speak on Wednesday at 2:30pm.

  • On Tuesday morning, the UK Unemployment Rate reading is expected to jump to 4.3% from 4.0% previously. This release only includes data up to March so the market may largely ignore the reading. However, the Jobless Claims and Claimant Count data is more likely to make the headlines as it includes April.
  • On Wednesday morning, monthly CPI for April is expected to show a deflationary -0.1% while the year-on-year reading is forecast to come in at 0.9% down from 1.5% previously.
  • UK PMIs for May are due to be released on Thursday morning with Manufacturing, Services, and the Composite reading all expected to remain in deep decline at 36.0, 22.5 and 25.0 respectively. Note, anything below 50.0 indicates contraction.
  • Finally, Friday’s monthly Retail Sales print for April is expected to post a decline of -16%, down from -5.1% previously.


Last week, the US Dollar index closed in the green after investors turned to safer assets throughout the week. On a trade-weighted basis, the US Dollar sits just 0.5% away from the peaks in its recent seven-week trading range – a level that could, once again, cap US Dollar gain in the coming days. Fed Chair Powell will be speaking several times throughout the week as investors seek clues on the Fed’s expectations for the US economy and signals of future monetary policy. Furthermore, the Fed’s minutes from the latest monetary policy meeting will be released on Wednesday evening.

  • Tuesday’s Building Permits figure is forecast to come in at the lowest level since 2014 – 1 million permits.
  • On Thursday, the US Flash Manufacturing PMI is expected to read 37.5, up from 36.1 previously while Services is forecast to reach 32.6, up from 26.7.
  • This Thursday’s US Jobless Claims is pegged to show another 2.4m Americans claiming unemployment over the past week.


Last week was another choppy week for the Euro as its trade-weighted index peaked at its 100-daily moving average on Wednesday, coinciding with the 1.09 figure against the US Dollar – a level that may provide further resistance this week. While Brexit negotiations are back in the spotlight, its effect on the Euro is likely to be more muted than Sterling, with Euro price action more tied to the COVID-19 crisis and capital flowing in and out of risk assets. Another week without any meaningful direction could be on the cards again. Thursday’s European bank holiday may create quieter trading conditions for the Euro.

  • Tuesday morning will host the ZEW Economic Sentiment surveys, with both the Euro-wide and German readings both expected to show a small uptick from the previous month.
  • Wednesday’s final monthly Consumer Price Index figure for April is predicted to print at 0.3%, unchanged from the previous estimate.
  • Friday will release a slew of European PMIs for May with the Eurozone aggregate Manufacturing and Services prints expected to read 38.0 and 23.9 respectively.