Bank of England, US Labor Market, Trump and the Euro

7 may 2020

The main event on Wednesday was the publication of US employment data from ADP in April. Median forecasts in the region of -20 million in fact were justified by almost 100%. So the markets received another reminder that it takes only one month of lockdown to destroy everything that was created in the US labor market over the previous 10 (!) years.

But this week the topic of the US labor market is not exhausted. Today we are waiting for the next weekly data on the number of jobless claims in the United States. And tomorrow will be the most interesting - official statistics from the US officials: NFP and unemployment. But we’ll talk about this tomorrow.

Today we recall that in the light of this state of the labor market, sales in the stock labor market remain relevant. In addition, we continue to recommend the purchase of the US dollar in the foreign exchange market, since now the dollar acts on the contrary: the worse the data, the greater the demand for it.

The euro was under pressure yesterday because of the another weak data on the Eurozone economy. Retail sales fell by almost 10%, and business activity indices have habitually reached the lowest levels in the history of observations. The European Commission announced its assessment of the damage to the EU economy: a 7.7% decline for the year (again a record high).

Returning to optimism in the financial markets, which rose sharply due to news of easing restrictions and the gradual withdrawal from quarantine of European countries. The United States and, in the first place, Trump really want to keep up with Europe in this regard. But the current epidemiological situation in the United States is not very conducive to mitigation. Even Trump admitted this yesterday, and outlined what everyone tried not to talk about: the rush to mitigate the lockdown means additional victims. But Trump, apparently, is ready to go for it.

The main event on Thursday will be the announcement of the results of the meeting of the Bank of England. Central Bank almost for sure won’t touch the rate, but the expansion of the quantitative easing program is possible. In addition, officials are likely to comment on the state of the UK economy. Almost certainly they will be extremely depressing. In this light, we recall our recommendation to sell the British pound against the dollar (selling GBPUSD) and against the euro (buying EURGBP).