U.S. Personal Consumption Expenditures record an enormous drop in March (Afternoon analysis 30.04.2020)

The European Central Bank reduces the interest rate on TLTRO and announces a new programme (PELTRO), but the asset purchase programme remains unchanged at 750 billion EUR. The eurozone economy may contract by 5-12% over the whole year. US consumption fell the strongest in March and April may be even worse. The zloty remains relatively stable.

Two-digit fall in GDP in the whole of 2020 is possible

The main event today was a statement and press conference of the European Central Bank (ECB). What may be the main news for the market is that the asset purchase programme has remained unchanged (750 billion EUR) and the ECB will not buy junk bonds for the time being. This may be a slight disappointment for the market, which could expect more determined actions from the Bank.

The ECB has not eased the conditions for the targeted longer-term refinancing operations (TLTRO III) programme, which will now be offered 50 basis points below the main deposit rate. An additional PELTRO programme (pandemic long-term refinancing operation) was also launched to a slightly wider range of institutions (than TLTRO) with an interest rate that is 25 basis points below the average rate on the main refinancing operations.

Christine Lagarde, the President of the ECB, specified the GDP forecasts for the eurozone. The common currency area may contract by as much as 12% q/q in Q2, while the forecast for the whole year assumes a decline from 5% to 12% y/y. The sentiment after Lagarde's press conference worsened slightly. This may be partly due to the failure to meet market expectations, partly due to the realization of profits after strong equity market growth in recent days (and weeks), and also due to weak macroeconomic data from the eurozone. The afternoon data from the US labour market were also not positive.

Americans are losing their jobs and income

According to the US Department of Labor, 3,839 million people applied for initial jobless claims last week. Although this is a decrease of 0.6 million compared to the previous week, their number was 0.34 million above expectations. Since the beginning of the pandemic, about 30 million Americans have applied for the claims. But this was not the only bad news from the US economy.

The March private income of Americans fell by 2.0% m/m, 0.3 percentage points more than expected and the highest in seven years. However, it was not this reading that worried the market most. Private spending has decreased by 7.5% on a monthly basis, the highest ever (or at least since the survey began in 1959). This information has probably contributed significantly to the strong weakening of the dollar in the afternoon, and April will most likely be even weaker in this context.

Chart: U.S. Personal Consumption Expenditures (month-on-month, %). Source: Bloomberg, BEA.

Data may put pressure on the zloty

The quotations of the main currency pair (the EUR/USD) rose slightly above 1.0970 in an hour and a half from the beginning of the New York Stock Exchange session. This is the highest EUR/USD exchange rate in just over two weeks, and the weakening of the US currency on the global market has also helped to reduce the effect of negative sentiment towards emerging countries' currencies. The zloty also benefited from this, and the USD/PLN exchange rate was the lowest since mid-April (approx. 4.138).

The EUR/PLN quotations remained in the range of 4.53-4.55 and the CHF/PLN slightly below 4.30, i.e. without major changes. With a multiplicity of relevant information coming to the market, the relatively low volatility of the Polish currency can be perceived positively. On the other hand, the disastrous macroeconomic data may predict an increase in supply pressure on the emerging countries' currencies (including the zloty) in the coming months.