World Economy slumps over Coronavirus
GBP & EUR
GBP fell on average 3% against all major currency pairs over the last one week, drawing a fresh 5-month low on GBP/EUR and GBP/USD.
Last week we saw both the UK & EU play hard ball with their mandate of an ideal trade deal, which saw GBP come off towards the back end. Today, British negotiators will travel to Brussels to start talks on a trade deal with their counterparts. It is expected that the UK’s breakaway from EU standards and regulations will be the main focal point.
Bank of England (BoE) Governor, Mark Carney, is expected to speak numerous times this week in regard to macroeconomic policy and more importantly the impact of coronavirus on the UK economy. The BoE could follow the Fed and introduce financial stimulus in order to help combat the virus.
UK has also published its mandate for the US trade deal as they vow to “drive a hard bargain” in a deal which could boost the UK economy by £3.4bn, particularly benefiting Scotland. It pledged to maintain food standard and also said that the NHS would not be for sale.
Quiet week for the EUR in terms of data with only Consumer Price Index (CPI) set to be released tomorrow at 10am.
USD
Last week, escalating fears of the coronavirus triggered the fasted-ever financial crash on Wall Street, knocking £3.9 trillion from global stock values. S&P500 lost more than 10% in just five trading days, whilst the yield on US 10-year Treasury notes fell to an all-time low of 1.15%.
The Federal Reserve (Fed) pledged to help markets should the situation worsen, causing money markets to expect more than three interest rate cuts by the end of the year, with the first being as soon as this month.
A fair amount of US data is to be released this week with the most important being average hourly earnings, unemployment and non-farms employment which are expected to better than previously and could see USD strengthen.
Coronavirus Update
No surprise as China’s PMI figures for both services and manufacturing fell to its lowest levels ever recorded; a move bigger than that witnessed during the 2008 financial crisis.
Oil prices have aggressively sold off this year as a result of reduced demand due to the virus. The closure of factories in China and disruption to global supply chains has prompted oil prices to drop over 25% in 2020. An OPEC meeting is scheduled on Thursday & Friday this week where we could see some restraint in order to support the prices.
UK’s Boris Johnson will chair a Cobra meeting this morning as the number of cases jumps to 36. The official plan on how to tackle the virus should be finalised and released mid-week.