A Market Overview During Global Pandemic: What NFP Lies Ahead? Will It Be The Worst NFP Ever?
The appearance of the coronavirus has had a major impact on the financial markets. Today, the US jobs report for March is due to be reported at 14:30 GMT, and as we get closer to the release time, here are the expectations as forecasted.
Here is what you need to know on Friday, April 3, 2020:
Calm Before The NFP Storm:
The NFP report will be somewhat backward-looking compared to the initial jobless claims report. As such, much like the AFP report, expectations are for a modest contraction in the headline figure. Keep in mind that the NFP report is from the week of March 8-14th. In turn, with the first notable lockdown orders taking place from March 20th in California with other states reporting lockdown procedures shortly after. The full extent of the coronavirus is unlikely to show up until next month’s reading, which will also have revisions for March.
Dollar Still in Demand, For Now:
The dollar was in demand in early trading in Europe on Friday, as investors sought safety following the dire U.S. unemployment figures which illustrated the extent of the economic fallout from the coronavirus pandemic.
At 3:05 AM ET (0705 GMT), the U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, rose above 100 for the first time in over a week to stand at 100.460, up 0.2% on the day and up some 0.6% on the week. EUR/USD fell 0.3% to 1.0823, while GBP/USD rose 0.2% to 1.2367. USD/JPY climbed 0.1% to 108.02.
Adding to the dollar’s appeal has been the sudden rebound in the price of oil, although Thursday’s sharp gains have been sold into early Friday. Oil is priced in dollars and the U.S. is also the world’s top oil and gas producer.
“The USD has once again proven to be King in times of crisis,” said analyst Andreas Steno Larsen at Nordea, in a research note, “probably as most debt is still denominated in USDs, which means that USDs are sought after when liquidity tightens globally as has been the case due to the corona lockdowns.”
However, the dollar could be hammered as soon as we approach a reopening of the economy, he warned.
“USD liquidity is sprayed at every single scarce corner of the market now. This is ultimately going to kill the USD momentum; it is just a matter of time in our opinion,” Larsen said.
The dollar “could face a hit of >15% over the coming 12-24 months if the global economy gets out of the woods in the meanwhile.”
The United States economy will shrink 5.5% in 2020, the steepest drop since 1946, with a huge 38% contraction predicted for the second quarter, Morgan Stanley (NYSE: MS) said on Friday in a new batch of forecasts on the economic damage from the coronavirus outbreak.
U.S. unemployment will also peak at a record 15.7% in the second quarter – that is up from a previous 12.8% forecast by the bank’s economists – with cumulative job losses of 21 million in the second quarter, Morgan Stanley said.
Projections released by the U.S. The Congressional Budget Office showed U.S. gross domestic product will decline by more than 7% in the second quarter as the health crisis intensifies.
USD/CAR Pair Awaits NFP:
The USD/CAD pair edged higher through the early European session and is currently placed near the top end of its daily trading range, around the 1.4220 regions.
Following the previous session’s good two-way price swings, the pair managed to regain some positive traction on the last trading day of the week and was being supported by some follow-through US dollar buying.
The USD remained well supported by its status as the global reserve currency amid concerns over the economic fallout from the coronavirus pandemic, which was further illustrated by an unprecedented surge in the US weekly jobless claims.
After spending the Asian session moving sideways near the 0.5900 handles, the NZD/USD pair came under renewed selling pressure and slumped to a fresh weekly low of 0.5843 on Friday. As of writing, the pair was trading at 0.5852, erasing 1.08% on a daily basis.
In an interview with NZ Herald on Friday, Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr reiterated that the central bank could increase the monetary stimulus if needed to make it difficult for the kiwi to find demand. Meanwhile, the Caixin Services PMI data from China improved to 43 in March from 26.5 but failed to provide a boost to the China-proxy NZD.
Oil added to the overnight gains and rallied another 6% on Friday on reports that the OPEC and non-OPEC producers (OPEC) are likely to debate oil output cuts of 10 million BPD when they gather over an emergency meeting next Monday.
The combination of diverging forces led to a subdued/range-bound price action and warrant some caution before placing any aggressive bets for the pair’s next leg of a directional move ahead of the release of the US monthly jobs report (NFP).
Economists still do not know the full impact the spreading coronavirus could have on the global economy while analysts state that the full impact of the virus won’t be clear probably until June (end of the second quarter). Although it’s expected that the global economy will perform poorly this quarter there are expectations that global economic growth will recover by the end of the year. All of this assuming that the coronavirus doesn’t make a catastrophic turn for the worse.
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