The April flash PMIs confirmed a further sharp deterioration from already historically weak March levels. While the services sector remains most affected, manufacturing starting to catch down with the collapse in servicing activity. Across countries, Germany is faring better than the rest of the EMU4, which is gingerly providing support to the euro. Still, the prospects of an asymmetric recovery will challenge the design of the European policy response. And for the euro, this is where the confusion lies given the constant inflight among EU members.
For the yen, the Nikkei headlines, which suggest the BOJ could go to unlimited bond-buying, should not fly with G-10 traders as being important. The BOJ was not buying anywhere close to the limit anyway because, under the YCC framework, they have not needed to. They have not been bumping against any quantitative limits. Furthermore, bond buying and QE-type announcements have had zero currency impact around the world anyway as far as currency markets policy transmission with Fed in the same boat.
The Australian dollar remains bid on dips, but it is going take a double dose of positive domestic and China data to get markets tacking towards .6450
The PBoC conducts CNY56.1 bn of 1y TMLF at 2.95%. (Bloomberg) This is a 20bp cut from the previous rate of 3.15% and matches the 20bp cut to the 1y MLF rate on Apr. 15. Lower rate but the smaller amount – quite a neutral move. Onshore funding has been flush, so the People’s Bank of China seems to be lowering the rate to be in line with the earlier cuts without further injecting liquidity, and USDCNH is searching for a direction but will ultimately end up tracking the dollar direction into the weekend.
Tensions in the Middle East, worries about the economics of Covid19, another 4.4 mn people filing for unemployment benefits in, and the US manufacturing PMI weakening to 36.9 are among the reasons why gold has been able to bounce higher, even with the U.S. dollar holding steady. Although, as has been the case most of the week, early profit-taking in Asia continues today. But the continuation of global central bank stimulus will be supportive for bullion as real rates remain negative.