The market reaction to the weak economic statistics published on Wednesday was expected. As we have previously indicated, investors have switched their attention from the situation around the coronavirus pandemic to the incoming economic statistics, primarily in America, as well as to the companies' first-quarter earnings reporting.
According to the data presented, retail sales in March fell more than expected to 8.7% against a 0.4% decline in February, while industrial production fell -5.4% against a 0.5% increase in February. The basic retail sales index also dropped significantly, which, however, lost slightly less than expected to 4.5% against a 0.4% decrease a month earlier and a 4.8% fall forecast. At the same time, the NY Empire State manufacturing activity index fell in April to -78.2 points against a forecast of a fall to -35.0 points and a previous decline to -21.5 points.
The market, as expected, responded to this data with a decline, especially since the first reports confirm a noticeable decrease in the profits of American companies for the first quarter of this year. Therefore, apocalyptic forecasts appeared again in the Press regarding the state and prospects of the American and, of course, world economy, terrible comparisons with the Great Depression in the States, which started in 1929. Moreover, these comparisons are clearly "not in favor" of the current situation.
But in our opinion, the situations are still different. We believe that the markets in Europe, the USA and even more so in China, have already drawn the bottom of this crisis. There will probably be more local decline, but they will not exceed the March minimum indices. We believe that investors will now closely monitor the actions of the American president, his decisions to end quarantine and resume economic activity. We believe that, generally, the worst is over and now any positive news will push up the value of the shares of companies, as well as the prices of commodity and commodity assets.
Against this background, we expect the dollar to continue to decline against major currencies. We assume that if the data published today on the number of applications for unemployment benefits in the United States show a smaller increase than expected (5.105 million), this will be a reason for the recovery of demand for risky assets and the weakening of the dollar.
Forecast of the day:
The AUD/USD pair found support at a strong resistance level of 0.6265. Growth in demand for risky assets will push the pair up to a recent local maximum of 0.6445.
The USD/CAD pair is turning down on a wave of rising crude oil prices, positive dynamics in Asian markets and rising futures for major stock indexes in Europe and America. A drop in the price below the level of 1.4080 will stimulate the pair to decline to 1.3860.
