Retail sales lowest on record is hardly surprising

While calls for a roadmap for the lifting of lockdown restrictions continue to be ignored by the Government, it seems that the country is passing through the peak of both infections and fatalities.

Dominic Raab, the stand-in Prime Minister in his last interview while filling that role defended the Government’s performance in waiting to impose the lockdown and its reluctance to allow even a partial lifting of restrictions.

UK Prime Minister Boris Johnson returned to Downing Street yesterday as he prepares to take control of the Government’s response to Covid-19.

Retail Sales data for March was released on Friday. They fell by 5.1% month on month, the worst ever result. It was expected that there would be something close to a collapse, given that the lockdown began on 23rd March. Sterling reacted poorly to the data as traders asked if a month with just one week of lockdown is that bad, what will April’s data look like?

This week is relatively light on the data calendar. The April data from distributive trades will be released tomorrow. This will be extremely poor with analysts expecting a read of -40 from -3 last month. While this is considered a secondary dataset, it will add to the picture of just how quickly the economy is slowing and will add to calls from business for a roadmap on just how the lockdown will be lifted.

Last week, the pound remained in close to its recent range. Versus the dollar it traded between 1.2502 and 1.2247, closing at 1.2372.

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It’s about the economy but so much more

As President Trump continues to promise that the economy would reopen for business soon, a claim that is not his to make, the demonstrations supporting both a lifting and continuation of the lockdown continue.

It is unusual for there to be such a considerable gulf in reaction from State to State but that reflects the nature of the pandemic and the different levels of infection that have affected States.

The death toll passed 50K on Friday with the North East of the country still the worst affected with Northern Central States reporting the fewest.

Georgia, which has one of the highest infection rates outside of the north east has announced a significant lifting of the lockdown which drew a stinging criticism from President Trump. This was both surprising and seemingly hypocritical given his previous criticism of (mostly Democrat run) States for remaining in lockdown.

Although Georgia (a Republican State) went further than Trump had recommended, the President did encourage the Governor to lift restrictions in a telephone call last week.

It seems fairly typical of the spiky relationship Trump maintains with State Governors of either persuasion and is a perfect illustration of the fairly haphazard manner in which the pandemic has been managed at the highest level. It also perfectly illustrates how the U.S. constitution can hamper nationwide responses where there is an unequal threat.

There are two major events taking place for the economy this week, both on Wednesday.

The preliminary release of GDP data for Q1 is expected to show a contraction of around 4%, while following that is an FOMC meeting..

While the Fed stands ready to further stimulate the economy if deemed necessary, Jerome Powell is also prone to taking stock before pressing the button.

This week’s press conference is likely to concentrate on the Fed’s response so far and the further measures available to the Central bank if deemed necessary, although Powell may also allude to growth expectations going forward depending on the Q1 GDP.

Last week the dollar index marked time as this week’s data as well as next week’s employment report weighed on trader’s minds. Weekly jobless claims fell a little but remain high, with close to 4.5 million jobs being lost. The index traded between 100.87 and 99.66, closing at 100.20

Agreeing to disagree is no solution

Until the EU can get its act together about the funding of the recovery from Covid-19, the serious damage to the Eurozone economy from the pandemic may only be secondary to the death blow it could deliver on the entire Union.

With no end in sight to how the recovery will be funded and who will bear the ultimate liability several nations announced tentative plans to reopen their economies in varying degrees. There has, so far, been no mention of the reopening of the borders and Germany’s proposal that the lifting of the lockdown should be coordinated by Brussels has been largely ignored.

This week, Christine Lagarde will chair a monthly meeting of the ECB and she is likely to be left foundering and isolated by the seeming lack of help being offered by individual states’ Finance Minister’s to present a united front.

Similarly, to the FOMC meeting, Lagarde is likely to recap what has been done so far, but when she is asked at the press conference following the meeting about future plans, she will undoubtedly come up short. This is likely to have a negative effect on the single currency.

Last week the PMIs showed that the economy is slowing at an alarming rate. Manufacturing output fell to a record low of 33.6, far lower than the 39.2 analysts expected, while services fell to a catastrophic 11.7, less than half of the expected result.

This week, apart from the ECB meeting, data for consumer, services and industrial confidence indexes will be released and there should only be a reaction if they are far better than expected. Preliminary data for Q1 GDP will also be released. It is almost impossible to predict how far the economy will have fallen but it will be the current quarter’s data that will show just how low a base the economy will reach.

Last week., the single currency traded between 1.0727 and 1.0896, cloning at 1.0822 as the 1.10 remains a distant target.