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European growth forecast crushes sentiment

European growth forecast crushes sentiment

The European Commission last night said it expects a 7.7% contraction in GDP for the continent this year. Combined with doubts about the easing of lockdowns and fear of a re-ignition of US/China trade disputes, the announcement weighed on growth assets. Bond markets sold off on growing concerns that China will reduce purchases or even sell holdings in the event of any escalation of rhetoric from the US.

The Euro weakened, and is threatening to crack support at US $1.08, potentially bringing eighteen-year lows near 1.0350 into view. The lower rate set for the Yuan yesterday has raised interest in offshore trading, with some traders looking for moves towards all-time lows. The safe haven Yen continued its uptrend, and the British Pound slipped below 132 Yen ahead of tonight’s meeting of the Bank of England board.

European shares fell, and the Dow and S&P 500 gave up early gains to finish in the red. The Nasdaq bucked the global trend with a 0.5% gain, but the lift was engineered by strength in just a handful of key stocks. Futures markets indicate opening losses for Asia Pacific markets.

How economies recover from virus containment remains a key question for markets. Today’s read of the China Caixin services PMI could shed further light. While economic data around the globe paints a grim picture, recent domestic data in China is more positive. Analysts forecast a read of 50.1, indicating steady to expanding activity. However trade data for April will likely reflect the global disruption, and consensus is that exports will fall around 14% and imports by 12%, in constant currency terms.

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