The focus this week should be on US inflation, retail sales and industrial production data for April, which we expect to make for grim reading. Traders will also be following closely the effects of partial reopening of the economies in the UK and Germany on contagion numbers, as well as the impact of the massive wave of US Treasury bond sales on long term interest rates, as the short term will remain well anchored by the Fed.

GBP

The UK’s gradual exit from the lockdown and its impact on contagion numbers will be the main news in the immediate-term. The easing in lockdown measures as of Wednesday will, however, not be reflected meaningfully in the data for at least the next couple of weeks or so.

Economic numbers, in particular monthly GDP, should provide some backward-looking reads on the pandemic macroeconomic impact. We do not, however, expect any earth shattering moves in sterling this week, and the pound should continue to track closely euro movements for now.

EUR

The ruling of the German constitutional court made for some explosive headlines, but we think its impact has been generally overstated. The judges in Karlsruhe did nothing to impede the purchases of sovereign bonds by the ECB. They did ask for the ECB to justify itself, and appeared to question the primacy of European justice over European institutions. We do not think the German political establishment will go along with such a potentially disruptive decision, and expect the situation to be diffused through some sort of face-saving “justification” of the ECB’s purchase programmes.

Meanwhile, the more limited damage to European labour markets compared to the carnage across the Atlantic and the clear downward trend in contagion numbers (unlike the situation in the US) lead us to maintain our bullish view of the common currency.

USD

The labour market report in the US was slightly less disastrous than expected, though it shattered all historical records. The destruction of just over 20 million jobs and a jump in the unemployment rate of over 10% had been largely priced in by the market, and risk assets worldwide continued to rally into Friday night’s close. It bears noting that these numbers were collected the second and third week of April, respectively, so they do not fully reflect the job losses for the month.

For this week, in addition to further April economic data that will provide a look at the pandemic damage, we will be paying close attention to the results of the massive auctions of US Treasury debt, and any potential impact in the long end of the US yield curve and what it may tell us about investor’s willingness to finance US deficits.