The Investment Bank Outlook 27-04-2020

<p>In our Investment Bank Outlook each week, we bring you a selection of perspectives from leading investment banks to outline the key issues and directional views for the week ahead. These excerpts, taken from research notes, will cover issues such as key market themes, economic releases, as well as any major trends and levels to watch. Please note, this material, which does not reflect the opinions of Tickmill, is provided for educational purposes only and should not be taken as an investment recommendation.</p>
<p><strong>NAB Markets</strong></p>
<p>Looking at currencies now, the Euro was Friday’s highlights, snapping a four day losing streak against the USD and now it starts the new week just above 1.08 mark. The union currency traded to a weekly low of 1.0727 following a dire German IFO survey, but the Italian rating news helped currency recover later in the session.</p>
<p>German business confidence extended its slump in April to a record-low 74.3, well below market’s expectations at 79.7.“Sentiment at German companies is catastrophic,” said Ifo President Clemens Fuest. “Companies have never been so pessimistic about the coming months. The coronavirus crisis is striking the German economy with full fury.”</p>
<p>Despite losing a bit of ground on Friday, the USD still had a solid week, up on index terms against majors (BBDXY+0.95%, now @1260, DXY +0.60% now @100.23), Asia (0.20%) and EM (1.66%).NOK was the G10 under-performer, down-2.66% over the past 5 days to 10.6226, reflecting its high degree of sensitivity to oil prices and the other notable under-performer was GBP, down 1.06% to 1.2367. UK Brexit and COVID-19 uncertainty weighed on the pound while NZD and AUD where little changed.</p>
<p>The AUD starts the new week at 0.6387 and NZD is at 0.6012. This could be an important week for antipodean currencies, both are very risk sensitive with the AUD in particular showing a higher degree of sensitivity to the performance of US equity markets in recent times. As noted above, the big number of US companies reporting their earning this week could be a big test for equity markets.</p>
<p>US data releases didn’t elicit much of a market reaction, but for the record March Durable goods orders fell 14.4%, worse than the consensus at -12.0%. Notably, ex-transport orders dipped only 0.2%, better than the -6.5% expected by economists. The big plunge in total orders was due primarily to the huge wave of cancellations for Boeing 737MAX aircraft – which subtracted 9.9% from the headline number, and an 18% drop in orders for autos and parts, subtracting 4.4%. Behind this noise, core capital goods orders were little changed, leaving Q1 as a whole exactly unchanged from Q4. Consistent with this view and bearing in mind the preliminary US Q1 GDP is released later this week, the Atlanta Fed GDP tracker has Q1 at -0.3% while the St Louis tracker is at -0.25%. These numbers are just a prelude to be big collapse expected in Q2.</p>
<h2>J.P Morgan</h2>
<p><strong>EUR</strong>: The euro is on the front foot this morning with the USD broadly weaker. Optimism around more re-openings being scheduled across Europe is providing at least an initially positive response in markets. How well economies actually perform in the months ahead as countries “reopen” will be an important focus, as will any resurgence of the virus data itself. Equity markets continue to hold their own, showing little sign of sustainable relent. This week is full of scheduled events/data, with both a Fed and ECB meeting on the calendar. What the ECB does with the PEPP programme and the degree to which it expands its scope will be a central focus. More on that later this week. For the time being, we remain core short of the euro but are not advocating building at the moment. Given the cautiously optimistic tone pervading the headlines around reopening of businesses, it would not be overly surprising if the pair remained supported in the very near term, particularly with the spec market leaning short. We would reassess the view on a sustained break of 1.0900/20.</p>
<p><strong>GBP:</strong> Cable has broken out of its 1.2300-1.2420 range but not in the direction we had expected. Risk markets continue to trade well and, with the market size diminished by the Covid-19 crisis, it takes little for currency positions to get squeezed – in this case, dollar longs. Bigger picture, we still like cable lower but, in the short term, the picture is again less clear. A further cleansing of dollar longs can’t be ruled out but any move to 1.2550/75 represents attractive levels to reset cable shorts for the medium to longer term.</p>
<p><strong>JPY:</strong> BoJ was pretty much in line with expectations as we saw the substitution of the JPY80trn JGB target for an unlimited amount – again this is largely symbolic and has little impact on the macro picture because the YCC policy currently see them buying nowhere near the previous ‘target’. They did strengthen their credit programs and, while this was a little more aggressive than our economist expected, it has had little effect on the JPY. London walk in to find USDJPY having another test of the 106.90/00 level amidst broad USD weakness, while cross yen is performing better alongside risk. Plenty of moving parts this week with the two other G3 CBs meeting, month end, and also Golden Week begins at the weekend in Japan. We still like running JPY longs at this juncture as we believe there is a risk that we see some local JPY buying in the lead up (to GW), but are watching key support at 107, a break of which could help ignite a move lower. 106.90/107.00 remains very good support with 106.10/20 below, while 108.10/20 remains resistance with 108.50/60 above.</p>
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