(20 MAY 2020)DAILY MARKET BRIEF 2: Stimulus actions from the Bank of England are rising

Indeed, speculations of further stimulus actions from the Bank of England are rising after the batch of negative releases that started this week. Attention to labor data was not much on the unemployment rate for March, which held at 3.9%, but rather on the month-on-month jobless claims that confirmed a hike of 856’500 (prior: 12’200) in April, the highest level on record. Furthermore, the latest release of month-on-month and year-on-year consumer inflation data confirm the worst, flashing at -0.20% (prior: 0%) and 0.8% (prior: 1.5%) respectively as UK inflation drops below 1% amid QoQ GDP forecasts for the 2Q 2020 given at -14.6% (Q1: -2%). On a positive note, a third of Britain companies confirm they can resume activity according to a British Chambers of Commerce survey whereas the risks of a hard Brexit in the light of the current 'low-quality' trade agreement proposed by the EU could be counterbalanced by a new post-Brexit tariff regime that would reduce tariffs below 2% on consumer products with trading partners around the world. Markets’ reaction for the coming days will be driven by PMIs in Japan, Europe and the US due tomorrow while market participants will also carefully monitor the Bank of Japan emergency meeting that should confirm funding to financial institutions as well as UK retail sales for April (consensus: -15.5%) on Friday. GBP/USD is holding at 1.2243, held down by prospects of negative rates and Brexit-related side effects on a longer-term view, expected to trade sideways short-term with a bearish bias long term.

By Vincent Mivelaz