Economic data for the first quarter of the year are beginning to roll in from across the world and show big falls, with output plunging in March as the coronavirus and measures to contain it took hold.
Very weak March data swamped the good performance by economies in the opening two months of the year.
France, Italy and Spain, which have been badly impacted by the virus, saw GDP declines in the first quarter of 5.8%, 4.7% and 5.2%, respectively.
In the US, where lockdown measures were implemented later, GDP contracted at an annualised rate of 4.8% and by a 1.2% fall in quarter.
This is only a foretaste of things to come in the second quarter, with many parts of economies under lockdowns.
In the US, the jobless number has risen by 30m in the past six weeks.
The US employment report for April due on Friday could show an over 20m fall in non-farm payrolls.
Surveys of purchasing managers in Europe show that the services sector largely ground to a halt in April, while there were steep declines in manufacturing output.
he US purhasing managers’’ index for April have also been very weak.
Indeed, we probably have never seen, nor will ever see again, data as shockingly weak as the month of April is likely to deliver, with the coronavirus and associated containment measures at their peak.
Quite amazingly, then, stock markets registered their best monthly performance in decades in April – the S&P 500 and Dow Jones posted their largest monthly gains since January 1987.
Admittedly, this came after steep falls by equities between mid-February and mid-March.
Remarkably, though, with GDP set for its biggest decline in 2020 since the end of the Second World War and the Great Recession of the early 1930s, the two main US stock markets are now down by just 10% year-to-date, while the Nasdaq is flat.
It would seem investors are expecting that all the stimulus measures put in place by central banks and governments are laying the ground for a strong recovery in activity.
One has to say, though, that this is very much a hope-based rally in stock markets that could easily end in disappointment.
In this regard, the Federal Reserve and ECB policy meetings this week saw top central bankers paint very grim pictures of the economic landscape, but keep policy unchanged bar some new liquidity measures from the ECB.
The promise is there, though, to do more if required.
Despite the big swings in stock markets, the main currency pairs have remained range largely bound.
The dollar is still at very elevated levels, even though the prop of relatively high US interest rates has gone.
However, it retains a safe-haven status in these uncertain economic times.
Currencies that weakened significantly against the dollar in March, when markets were most fraught, have recovered much of the lost ground.
It is hard to call the next big move in foreign exchange markets.
The dollar is the real key.
The euro-dollar rate has been confined to a narrow range of €1.07-€1.15 since the autumn of 2018.
It is going to take a major event to shake it out of this range.
A return to heightened risk aversion on markets, possibly on fresh concerns over the economic outlook, would likely trigger a flight into the dollar that could really test euro support at the $1.07 level.
On the other hand, if a sustained recovery takes root in the second half of the year, the dollar could start to descend from its current high levels.
However, it would be a tall order for the euro to rise above $1.20.
It has not been in this territory since 2014, except for a brief period in the first half of 2018.
-Oliver Mangan is chief economist at AIB