Over 33 million initial jobless claims in the USA (Afternoon analysis 7.05.2020)

The Bank of England acts in line with expectations, but it is the Norwegian central bank that surprises with the interest rates cut to 0. According to forecasts, Norway, which is doubly affected by the pandemic and low oil prices, will achieve the level of GDP growth before the pandemic no sooner than in mid-2022. The zloty depreciates slightly due to the stronger dollar.

What does Norges Bank do when the virus hits and the oil gets cheap

Today the Bank of England decided to keep interest rates unchanged (0.1%). At the same time, it announced that there is a possibility to increase the asset purchase programme (two members voted in favour). In an interview with Bloomberg, Mike Carney, Governor of the Bank of England, when asked about negative interest rates, replied that no possibility should be excluded now. This should not be a clear sign of negative interest rates, but Carney's declaration illustrates the central banks' uncertainty about the near future.

The decision of the British Central Bank did not trigger major changes in the pound valuation, as it was not a surprise to the market either. However, the Norwegian central bank's decision was rather surprising. Norges Bank reduced the main interest rate by 25 basis points to 0.00% and suggested that it would stay at this level for "a certain period". The consensus of economists indicated that the rates would remain unchanged in Norway. In response to the decision to cut the rates, the Norwegian krone lost about 2% against the dollar just after New York Stock Exchange started trading.

Norway has been economically hit twice: by the pandemic and its associated restrictions, and by extremely low oil prices. The Scandinavian economy is highly dependent on the export of "black gold". The Governor of Norges Bank Øystein Olsen also said that oil prices in the range of 50-60 USD are "good" for Norway. Meanwhile, today a barrel of WTI oil cost 26 USD, and a Brent 31 USD, and prices have already increased strongly over the last two weeks.

33.5 million new unemployed in the USA

In the afternoon, a number of submitted last week's jobless claims in the USA was announced. 3 169 million people submitted jobless claims, i.e. 169 thousand more than the market expected. Since the beginning of the pandemic, over the last two months, the number of claims has reached 33.5 million. The number of people who have received claims in the past week also turned out to be higher than the forecasts: 22.647 million, which was 2.847 million above expectations.

The EUR/USD exchange rate drops even deeper, but the market awaits Friday's report

The market has already got used to such disastrous data. However, the figures are so unprecedentedly high (before the pandemic, weekly claims were around 200-220 thousand) that it is hard to find a reference point. It is easier to focus on the future and the upcoming recovery from the recession.

Today, the dollar continued its gradual strengthening. In the afternoon, the EUR/USD fell to about 1.0766, which is the lowest rate in nearly two weeks. This put some pressure on the currencies of emerging countries, including the zloty. Although the USD/PLN exchange rate rose slightly above 4.23, it still remains within the relatively narrow range of last month's quotations.

Tomorrow's preview

The event of the day will be the April report on the US labour market, which will be published by the Department of Labor at 2.30 p.m. This is one of the most important benchmarks for the market in terms of the level from which the recovery will begin (most probably slow). The median of market expectations indicates a drop in employment in the non-farm sector by 21.25 million and an increase in the unemployment rate to 16%.

The market has ignored the incoming, disastrous macroeconomic data to a large extent so far, but much worse than expected information can deteriorate the sentiment. The dollar currently remains relatively strong, due to weak data and forecasts from the eurozone, but a much worse-than-expected report could potentially weaken it slightly.