• Joel

DXY Shoots Above 100 on Dire US Data

USD rallied again on another batch of bad US data, with DXY crashing through resistance at the 100 mark to make fresh highs on the week.  

US Weekly Initial Jobless Claims printed in line with expectations at 5.1mln, meaning that roughly 22mln Americans have been put out of work in the last 4 weeks, meaning that pretty much all of the job gains achieved since the expansion began in June 2009 have been wiped out. All gone, in four weeks. Incredible!

Moreover, at the same time, another widely followed regional survey was released and, in fitting with yesterday’s New York Fed Manufacturing Index data (which came in at record lows of -78.2, vs exp. -35), it was a stinker. 

The April Philadelphia Fed Manufacturing Index came in at -56.6, its worst levels since July 1980, well below expectations for -30 and way below March’s -12.7 reading. 

The combination of horrible NY Fed and Philly Fed manufacturing surveys does not bode well at all for April ISM Manufacturing PMI data, set to be released at the beginning of next month (we could be looking at a reading in the low 30s). 

At the time of the release, USD was relatively unmoved. In fact, the bulk of the move came just prior to the 4pm London Fix (the time when FX pricing is used by global financial institutions to value their global holdings). 

As such, there may have been some market manipulation in play, but either way, it doesnt matter. USD is higher primarily on account of its safe haven status.

For equity markets, the reaction was mixed, with price action going both ways in the hours after the data. 

However, one thing is becoming apparent. Attention is returning from Fed related euphoria to harsh economic reality at hand. 

More than 20mln, I repeat, 20mln Americans have lost their jobs in the past 4 weeks. By the end of April, it will be far more. If that isn't enough doom and gloom, just look at the last two day’s regional manufacturing sentiment surveys and manufacturing production data (showing absolute devastation in the economy since the start of March). 

As many, including us, have been saying for weeks, the rally in risk assets seen from the Covid-19 lows over about the last three weeks is looking increasingly shakey. 

The Fed can print as much money as it wants, and buy whatever it wants. But it cannot change the fact that the global economy has pretty much ground to a halt as a result of this pesky little virus. 

Will markets continue to trade off of Fed liquidity provision (i.e. “wow the Fed is buying everything, markets must rally no matter what”), or will they trade off of the actual fundamentals on the ground (i.e. the economic devastation caused by Covid-19)?

In recent weeks they have erred towards the former, but it looks as though a shift towards the latter is underway. As more abysmal data from March and April comes out, this trend is likely to be exacerbated. 



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