The first quarter of 2020 was the worst first quarter in the 135-year history of the Dow and modern-day humanity is finally over. COVID-19 reared its ugly head in the last 3 months, hitting China first and then Europe and now the US. Stocks and commodities took the brunt of the selling with the Dow Jones Industrial Average losing more than 20% of its value and oil falling 60%. European stocks were hit hard as well, dropping more than 25% and in Asia, the Nikkei fell 20%. In a nutshell, it was a terrible month for stocks and a volatile month for currencies. Money flowed into the US dollar for safety but as the virus spread in America, the greenback gave up its gains as investors worried about the outlook for the US economy and questioned the Trump Administration’s efforts to help businesses and consumers survive. Today’s sharp decline in consumer confidence reflects the country’s deep-seeded pessimism. The consumer confidence index dropped from 130.7 to 120 in March.

In our world of major currencies, the Australian and New Zealand dollars lost the most this quarter, falling 13% and 11% respectively. The Canadian dollar also lost over 8% while losses in the euro were more modest at approximately 2%. Looking ahead, the second quarter won’t be a pretty one. Most world leaders have warned that business activity may not get back to normal until June. Schools in many countries will be closed for the rest of the term, leaving workers stranded to find childcare. We could be lucky and in a few weeks, the stay at home measures will prove fruitful and curve in the US will peak. At the same time, 5 to 15-minute COVID-19 tests will become readily available, helping to control the outbreak. However even if that becomes true, March releases come out in April which means that we’ll see the brunt of data weakness in April and May, starting with this week’s jobless claims and non-farm payrolls reports. The tug of war between weak data, Q1 earnings and COVID-19 headlines (positive or negative) should make for a volatile second quarter for FX traders.

We get the first look at how ugly non-farm payrolls could be in March from Wednesday’s ADP private payroll survey. Economists are looking for private payrolls to fall -150K, which seems to be overly optimistic given the 3 million jobless claims filed in the last report and the 3.5 million expected to have been filed for the week ending March 28th. It is however consistent with the forecast for only -100K decline in non-farm payrolls. Both of these forecasts are overly optimistic in our opinion and even if they are accurate, will be taken with a grain of salt because, in reality, millions of Americans have lost their jobs. Collectively major retailers like Macy’s, Kohl’s and Gap have furloughed their more than 500,000 workers despite the $2 trillion stimulus package. The state of the labor market is ugly (Goldman Sachs thinks the unemployment rate will hit 15%) and it is only a matter of time before the data shows that. Non-manufacturing ISM is also scheduled for release and given the deep contraction in the Philadelphia and Empire State surveys, we are looking for manufacturing activity across the US to contract sharply in the month of March.

USD/CAD extended its rise on the back of weaker GDP data. The numbers are dated but they show the Canadian economy growing by only 0.1% in January. The March data will be much worse but we won’t see those numbers until late May. Oil prices are rebounding after dropping briefly below $20 a barrel. The Australian and New Zealand dollars fell sharply after investors quickly shrugged off China’s better PMI numbers. To everyone’s surprise, China’s composite PMI index jumped to 53 from 28.9 with improvements seen in both manufacturing and services. It is important to realize that these numbers are compared to the prior period. China is coming back online but economic activity is far from normal. New Zealand business confidence dropped by a staggering amount overnight – the ANZ index fell to -63.5 from -19.4 to a near-record low. Manufacturing PMI numbers are scheduled for release tonight from Australia along with the minutes from the March 18 monetary policy meeting – both of which should be negative for the Australian dollar.