Economic Analysis

Central banks were in focus last week, as policymakers continue to monitor the effects of the damned Corona pandemic. The employment figures were shocking, and reflecting harsh economic conditions. As for this week, attention is focused on the US GDP report for the first quarter, with analysts preparing for a sharp drop of 5.0 percent.

In a widely expected move, the Bank of England expanded its quantitative easing program from 645 billion pounds to 745 billion pounds. Policymakers did not lower interest rates to negative territory, as the official rate remained pegged at 0.10 percent. Unemployment lists ballooned by 528.9K in May, after rising to 856.5K in advance. However, the unemployment rate remained tied at 3.9%, which surprised analysts who expected a rate of 4.7%.

The Bank of Japan has maintained tight monetary settings, as policymakers hope the global recovery is slow. The bank said it would provide about $ 1 trillion to help companies in financial trouble. In Germany, inflation contracted 0.1% in May, marking its first decline in four months. In the euro area, annual inflation fell to 0.1% in May, the lowest level since June 2016.

The Reserve Bank of Australia (RBA) released the minutes of the policy meeting in June. At the meeting, policymakers kept the current policy settings, including keeping the cash rate at 0.25 percent. Unemployment rose for the second month in a row, as the economy lost 227.7K jobs, worse than the 105.0K forecast. The unemployment rate jumped to 7.1 percent, up from 6.2 percent previously.

In Canada, consumer price inflation rebounded with a 0.3% rise in May after two consecutive declines. However, this forecast missed 0.8 percent. The core CPI, which excludes the most volatile items, fell 0.1 percent. There was positive news on the employment front, as the ADP Jobs report indicated that the economy added 208.4k jobs in May.

Powell, the Federal Reserve Chairman, had a grim message to Congress, warning that the US economy was in the midst of a deep downturn, with "great uncertainty" over how long the economic recovery would take. Powell added that he does not expect a full recovery until the public is convinced that the Corona pandemic has been fully contained. Unemployment claims showed a small movement last week, with gains of 1.5 million. This was higher than the 1.3 million forecast.

Eurozone PMI indices: Tuesday, 10:15 in France, 10:30 in Germany, and 11:00 in the entire eurozone. The services sector is still shrinking but showed some improvement in April data. The German services PMI was slightly higher than the 30 level, while the French index improved to 36.6 points. The manufacturing sector also continues to deflate, with April's readings well below level 50, which separates deflation from expansion. The German Manufacturing PMI increased to 36.6, the Euro-Zone Index at 39.4, and the French Manufacturing PMI increased to 40.6 points. Initial readings may improve for May, but will remain in contraction.

UK Manufacturing PMI: Tuesday, 11:30. The manufacturing sector was in a downturn, as factories were forced to close or operate with limited capacity following the Corona pandemic. In May, the PMI came in at 40.7 and the initial reading for June at 45.2 points.

British Services PMI: Tuesday, 11:30. The services sector was hit hard as most of the British economy stopped at a dead end. The Services PMI improved to 29.0 in May, up from 13.4 previously. Analysts expect a solid improvement in the June release, with an estimate of 39.1 points.

US Manufacturing PMI: Tuesday, 16:45. After a weak reading at 39.8 in April, the PMI is expected to rise to 50.0, separating deflation from expansion. If this estimate is accurate, we may see the US dollar improve.

United States GDP: Thursday, 15:30. Analysts are preparing for a sharp drop in first quarter GDP, with an estimate of -5.0%. This reflects the damage caused to the economy by the Corona pandemic. If the actual reading exceeds expectations, the dollar could escape without any major losses.

American Unemployment Claims: Thursday, 16:30. Unemployment claims are expected to continue to decline, with an estimate of 1.3 million. The numbers were very high, but out of touch with April, when the two weekly releases were above the 6 million mark.