Morning Commentary: Open for Business

Foreign Exchange - Morning Commentary
Open for Business
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
All 50 states and Washington DC have now lifted bans on non-essential businesses.  34 states have lifted shelter in place orders and 41 have removed full restrictions on restaurants and bars.  

As would be expected, mobility and economic data have both shown increases with the economy more open this week than last.  Small businesses, especially in states further along in the re-opening process, have also shown progress in re-opening their doors.  Other measures, such as dining out, air travel, mortgage applications etc. have also shown improvement.

But it is important to remember that the improvement in activity is incremental to the recent trough.  However, when compared to last year, activity remains severely depressed.  GDP growth for Q2 remains on track to be historically negative according to the NY Fed’s weekly economic index with the uncertainty of a second wave creating a chronic drag on the economy.  

This makes the virus the key factor determining the nature of the economic recovery.  Thus far, the virus still seems largely under control.  The majority of states are seeing either a decline in the number of cases or the share of positive tests.  However, there are 17 states that are seeing a significant growth in the number of cases.  Just last week, there were only 13 states that fit this description.  Notably, the virus appears to be on the rise in parts of the Southeast where reopening is further along.  This is important as it potentially foreshadows what could be in store for other states as they move along the re-opening curve.   
  • US initial jobless claims came in at 1.88 million claims, worse than the 1.83 million claims expected.  While bad, this was the first initial jobless claim number less than 2 million since the COVID-19 related layoffs started mid-March.  This data print adds to the narrative that the negative impact from the virus, while still significantly bad, is lessening.  
  • The ECB extended its Pandemic Emergency Purchase Program (PEPP) until at least June 2021.  Additionally, it increased its bond purchases by 600 billion, which was higher than consensus.  The bank also announced the reinvestment of the PEPP holding until 2022.  In total, the ECB did more than the markets expected, which reflected in the spike higher in the euro post announcement.  Today’s announcement continues a string of positive surprises that started with the Franco-German fiscal transfer proposal and continued with the European Commission’s rescue package and German fiscal stimulus package.  All of these positive surprises have given support to the euro and global risk sentiment.  
  • China eased a ban on flights to China, which is a change of course, after the US demanded that its flights be allowed to fly there.  
  • Tensions in Hong Kong remain high as protestors prepare to commemorate the 1989 Tiananmen Square assault.  
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