INSIGHTS

Duncan Donald

Tue, Apr 14


A glint of hope for the markets as Covid-19 cases flatten and an Oil deal is struck

 

As the markets return after the long Easter break, they seem to have a more assured tone to them. The main news over the weekend was that at the scheduled OPEC meeting, as expected a deal was struck to limit the supply of Oil by 10% to try and stem the decline in the price of the commodity. This agreement hopefully shows the willingness of Russia, the Saudis and the US to work together to maintain a competitive price amid the global downturn in demand for Oil.

 

Whilst we start the week with the news that Europe look to be extending the lockdown into May and with it being likely the UK will do the same later this week, there is a glint of optimism as new cases and deaths are arguably flattening towards turning in some parts of Central Europe namely Spain Italy and Germany, with the Czech Republic, Austria and Denmark discussing kickstarting their economies, albeit, with social distancing and masked protection. In the UK the rate of deaths has broken through 11,000 with data suggesting nearly half of thoses coming from old age care homes. However, the turning point has still to be reached with the UK remaining in the eye of the virus storm.

 

In the US as President Trump remains more concerned by public perception of his performance than the facts, there was positive news as New York state, one of the worst affected finally showed a contraction in numbers with the President seems intent on getting the workforce mobilized to thwart the effects of the mass unemployment, underlined by a further 6 million freshly unemployed reported last week, bringing the total to above 16m in the last 3 weeks. The Federal Reserve stepped in again with another huge package of $2.3 trillion aid in the form of loans to businesses.

 

The scale of the global Central Bank aid packages have forced the markets to sit up and take note, and whilst many participants were thinking the rally from the lows were an opportunity to sell again, we are now close to the tipping point where a continuation of the bounce will flush out the short sellers and have those who awaited what was seeming like an inevitable dip being forced to buy in at higher levels. With last week’s pullback looking intact as we kick off the new trading week it could be interesting, however the trading sessions won’t be without volatility, as it seems a trading range of around 2% is becoming the new norm. For now, the Central bankers’ assurances have set the doom mongering markets at ease, however the inflation problem caused by such stimulus, will of course remain a problem for another day.

 

Whilst we remain hopeful that the reduction in virus cases persists, the timely management of the reintroduction of global workforces will be crucial. Whilst the temptation to stimulate the economy quickly will be hard to fight, a worry will always be a second wave of cases as a result of premature action.  Trump seems intent on lifting bans as soon as possible whether at the advice of his top medical representation or not, as he clamors to lift the stock markets to emulate the progress the data is suggesting China has seen since coming out of lockdown.

 

This week’s key focuses will be on Chinese GDP and Retail Sales on Friday. Again, US weekly jobless will be in focus on Thursday. This week also sees the start of earnings season with the banks leading the way.  With so much of Q1 being blighted by the impacts of the virus not a great deal will be expected of the reporting companies, with more attention focused on the forward guidance given for the rest of the year.

 

The Week Ahead

 

Monday

  • Bonds Data - US

Tuesday

  •     Retail Sales – US
  • Fed Bullard and Evans to speak – US

Wednesday

  •     Industrial Production – US
  •     Manufacturing Production – US
  •     Capacity Utilization – US

Thursday

  •     Unemployment Rate – Aus
  •     Credit Conditions Survey – UK
  •     Jobless Data – US
  •     Housing Starts – US

Friday

  • GDP – China
  • Inflation Rate – Eurozone

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