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USD Risk Ahead! Big Week Of U.S. Data Incoming



We have a big week of US data incoming.


Things kick off tomorrow with consumer confidence data for March. In the latter parts of this month, the US has gone into near-complete lockdown in an effort to stem the spread of Covid-19, with devastating effects on the labour market. Most expect consumer sentiment to have naturally taken a beating, reflecting the suffering of those who have lost their jobs, or have taken pay cuts, or whose businesses are struggling. 


On Wednesday, we have March ADP national employment data, followed shortly after by March ISM manufacturing data. The former is, as ever, important in setting expectations for the job market ahead of monthly official jobs data (NFP), which comes on Friday. The latter will tell us how badly manufacturers have suffered this month; as noted above, the US has gone into near-total lockdown to stem the spread of Covid-19, meaning that many manufacturers have had to halt operations entirely, or at the very least face severe disruptions. Most in the market expect a big drop in manufacturing sentiment. 


However, many a factory can continue to operate whilst maintaining reasonable social-distancing guidelines, whereas a much higher proportion of the service economy cannot. As such, the hit to service industry businesses is expected to be much higher, which markets expect to be reflected in an even larger fall in March ISM non-manufacturing data on Friday. 


On Thursday, the focus then returns to the US jobs market. We get another batch of Weekly Initial Jobless Claims data, with another roughly 3 million Americans expected to have filed for unemployment insurance. 


Finally, just prior to ISM Non-manufacturing data on Friday, we get March NFP data - the official report on the state of the jobs market in March. This data will tell us just how many of the 5.5mln spike in initial jobless claims towards the end of March was the direct result of job losses.


How will the market react?


USD has largely been trading at the whim of market liquidity conditions in the past few weeks; with Fed measures to flood the market with USD a deciding factor in USD’s decline last week. 


However, that does not mean that this data will not buffet the greenback. Last Thursday, abysmal Weekly Jobless Claims data assisted in sending USD lower, as it boosted expectations of even more Fed intervention. 


With Fed members already hinting at policies such as direct payments to citizens and urging everyone that will listen that they still have plenty of policy ammunition left in the bank, this week’s batch of data, if bad enough, could do a very similar thing. That is, if this week’s data is bad enough, we could be in for some further USD selling. 


What about stocks? As we saw last week, stocks actually rose on the bad jobless claims data, on the hopes that the data will help to “wake up” policymakers, both monetary and fiscal, and increase the aggressiveness of their response to Covid-19. I see no reason why bad data this week shouldn’t do the same thing, especially given that since the start of last week, stocks have been reluctant to do anything other than climb higher. 


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