Monex: EUR/USD daalt door slechte Franse en Duitse inkoopmanagersindices

23 april 2020

Hieronder volgt een commentaar in het Engels van Ranko Berich, Head of Research bij Monex Europe op de Amerikaanse dollar, euro en het Britse pond.

EUR
Today is an eventful day for the eurozone. The euro is plumbing fresh lows this morning, having weakened to its lowest level against the US dollar since the beginning of the month. The ECB expanded its range of eligible collateral yesterday to include recently downgraded securities that were previously rated investment grade, in response to possible further downgrades of sovereign and corporate debt in the coming months. The move represents another significant loosening in collateral requirements and counteracts the risk of ECB collateral rules worsening any tightening in credit conditions. Later today, EU leaders will meet to discuss the details of the $2.2trn economic revival package. Previous meetings by EU finance ministers were characterised by diverging views, as countries like France, Italy and Spain clashed with Germany and the Netherlands over the issue of mutual debt for the eurozone. The focus today will most likely be shifted to the EU’s seven-year budget that will be in play starting January 2021. With Brexit leaving some gaps in the EU’s finances and output expected to fall with 10% according to an EU official, this does not make things easier for the bloc. Officials stated that while consensus is growing around the shape of the economic revival plan, the details will most-likely drive the discussions. The euro took a dive this morning after the release of dismal Purchasing Managers’ indices from April for France, Germany and the eurozone. French manufacturing figures slumped to 31.5 in April from 43.2 in March, well below the forecasted 37.0. The service sector was hit hardest and printed at 10.4 compared to the consensus of 24.5 and the prior reading of 27.4, leaving the composite PMI at 11.2. German PMIs more or less followed the French figures but printed slightly better. Service PMIs printed at 15.9 compared to the 28.0 consensus and prior reading of 31.7, while manufacturing was stranded at 34.4 compared to the forecasted 39.0 and prior 45.4. Both sentiment and hard data are starting to reflect the extent of the economic damage more than in previous weeks, inducing markets to pay more attention to the data and react to it.

USD
The dollar traded with a mixed tone overnight, losing ground to NOK, AUD and NZD despite Australian purchasing managers data printing at a record low. Despite the overnight losses, the dollar remains at a high level against most major currencies. US news flow was of middling relevance to markets yesterday, with Senate Majority Leader Mitch McConnell saying he opposed bailing out state finances, and House Speaker Nancy Pelosi saying that exactly this type of aid will be in the next round of stimulus considered by lawmakers. Donald Trump, in the meantime, threatened to shoot Iranian gunboats “out of the water”, following an incident in the Persian Gulf. The comments may have supported crude oil prices - a consequence unlikely to have gone unnoticed or unanticipated by the US President. Weekly initial jobless claims are expected to top 4 million this week, as the historic job losses resulting from the US economic lockdown continue.

GBP
Sterling struggled to hold onto all of its gains yesterday, ultimately closing just 0.4% higher on the day. The pound’s gains mildly lagged that of the Australian and Canadian dollars which topped the G10 currency board yesterday, highlighting how open the pound is to global sentiment post-Brexit. This morning it was announced that the UK government plans to issue £180bn in government bonds in May and June alone. This staggering number is £25bn more than it had planned to issue for the whole of the 2020/21 fiscal year and follows the theme of heightened bond issuance globally to finance large fiscal stimulus packages to respond to the coronavirus. Thus far, the tally of gilt issuance stands at £236bn for the new fiscal year, which comes in at a record level, however, gilt yields are relatively unfazed by the new issuance numbers. Sterling is also little changed on the headlines as it flirts with its opening price, swinging between positive and negative on the day this morning. The tentative pricing likely reflects the April preliminary PMIs that were set to be released later on in the morning. At 09:30 BST, the data was released and the initial estimates followed suit with that seen in the eurozone. The manufacturing sector has held up the best during the pandemic but still remains in contraction as reported by the PMIs. The April preliminary readings show the service sector slipping from 34.5 to 12.3 and manufacturing sector slipping from 47.8 to 32.9, with the overall composite index falling from 36.0 to 12.9. The flash reading for April, which constitutes roughly 85% of respondents, have hit record lows dating back the 22-years of IHS history and simple historic comparisons suggests this is consistent with an approximate 7% quarterly contraction in GDP. Sterling bounced into the green on the release though as the readings weren’t as bad as that in the eurozone composite, but the dramatic downturn in economic conditions are likely to cap any real sterling strength without an improving string of data driving it.