INSIGHTS

Duncan Donald

Mon, Apr 27


Markets steady as global cases slow, how soon can the economy come out of lockdown?

We start the week on a firm footing as cases of Covid-19 finally move from flattening to reducing. Obviously, this is not the case everywhere, but the fact that some of the worst affected areas such as France, Italy, Spain and some states in the US are showing a shift to a reduction of cases is certainly proving to be the relief the populations and economy was sorely in need of.

 

The next big question remains, how do governments kick start economies in the safest way possible. With China having come through this situation first, the obvious path to follow would be the one deployed in some of their worst affected areas, but whether people would adhere to such rigorous monitoring and controls albeit for their own good, would be questionable, as too would the technologies and the definition of health, with such a small number of the public having been tested across even the richest of economies in the western world.

 

For this week all eyes will be on the government announcement of dates for a reduction or scaled approach for a resumption of working ability. With Germany and Austria already having opened or partially permitted a lift of restrictions, a European president has been set, and with cases and death numbers falling, there is justification for constructive planning, with talk being that France and Spain are targeting the first or second week of May to take the initial steps.

 

In the UK Boris Johnson returns to work this week after his hospitalization with the virus, and consideration should be given whether his personal brush with the illness may make him more reluctant to lift restrictions quickly. With the UK having been one of the last countries to bear the impacts of the virus they can perhaps take a more precautionary approach watching Central Europe’s reaction and the consequences thereof.  In the US, President Trump has scaled back his virus briefings following heavy criticism after his comments regarding injecting household cleaners into citizens to fight the virus.

 

With the evident albeit slow turning point in virus numbers, the markets have certainly stabilised with the stock markets seeming almost boring in comparison to recent weeks as they gradually grind back some of losses felt in March. We open the week positively with the new risk haven the US Dollar being sold at the Asian open. The Australian Dollar was also very well bid as there was talk lockdown may be lifted in certain parts of the country, this after the Australian government had previously warned the lockdown could last 6 months.

 

As US employment numbers continue to fall due to the lockdown, with now more than 26 million new unemployment claims in just over a month, one of the major contributors is the Oil sector. With the Airlines struggling and global freight restricted to the minimum, demand is at all time lows. Whilst a reflective approach over the long term may be that anything below $40 per barrel is good value for Oil, last week showed exactly how that can be a dangerous game. The key issue with certainly WTI is storage, nobody wants it, the mines need to keep rolling at the most reduced of production levels, but this causes the problem that it's costing companies’ money to store.  Last week as the Futures Contract rolled from the May to the June contract suddenly panic set in and the commodity crashed to minus $37 per barrel into the fix.  As the June contract opened it drifted back into a positive $10-20 range with expectation that it will continue to trade heavy.

 

This week is a big week not only for Central Bank meetings with the Bank of Japan, Federal Reserve of the US and European Central Bank, there will be a plethora of multi-national and tech giants reporting their earnings with leading brands such as Google, Amazon, Facebook, Tesla and Pfizer reporting as well as brands expected to suffer in light of Covid-19 such as Exxon, Boeing, Shell and Merck.  Of course, the markets will remain vigilant to governmental updates on cases and lockdown schedules as the primary driver.

 

The Week Ahead:

 

Monday

  •   Dallas Fed Manufacturing Index - US

Tuesday

  •   Unemployment Rate – Japan 
  •   Wholesale Inventory – US 
  •   Home Price Index – US 
  •   Retail Sales - US 
  •   CB Consumer Confidence – US 
  •   Richmond Fed Manufacturing Index - US

Wednesday

  •       Loans to Companies/Households – Eurozone 
  •       Economic Sentiment – Eurozone 
  •       Industrial Sentiment – Eurozone 
  •       Consumer Confidence – Eurozone 
  •       Inflation Rate – Ger 
  •       GDP Q1 – US 
  •       Fed Interest Rate Decision 

Thursday

  •       NBS Manufacturing PMI – China 
  •       Unemployment Rate – Ger 
  •       Housing Price – UK 
  •       GDP Q1 – Eurozone 
  •       Unemployment Rate – Eurozone 
  •       ECB Interest Rate Decision 
  •       Personal Income/Spending – US 
  •       Jobless Claims - US 

Friday

  •   BoE Consumer Credit – UK 
  •   Mortgage Approvals/Lending – UK 
  •   Markit Manufacturing PMI – US 
  •   ISM New Orders – US 
  •   ISM Manufacturing PMI - US 

 


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