MACRO MENU: 06 - 10 APRIL 2020

MACRO MENU: 06 - 10 APRIL 2020

Updated: Apr 6

MARKET BRIEFING: Monday 6th April 2020
THE WEEK AHEAD: Sunday 5th April 2020

The question I have been asked the most from junior traders, or university students, is how bad will this be economically compared to the Global Financial Crisis (GFC)? The answer to that is significantly worse.

The latest evidence of this last week was the US jobless claims which came in at 6.65 mln, taking the two week total to 10 mln. To put this in context the worst weekly jobless claims figure during the GFC was 665,000.

The reality of how severe this situation is was clear for all to see in the latest US Non-Farm Payrolls report, which showed the US shed some 701,000 jobs against an expected decline of 100k. More worryingly, this figure is likely to be dwarfed in four weeks' time as the reference period for the March report didn't capture the bulk of the impact of the pandemic. As such, seismic job losses are likely to see the US unemployment rate soar well into the mid-teens in the months to come, far exceeding the 2009 peak of 10%.

Now that the immediacy of the impact is becoming more clear the scope and rate of recovery is the next big question. Given the unprecedented size of fiscal stimulus that has been adopted and the responsiveness from central banks to cut rates, restart QE and deploy liquidity in the system, will we see a V, L or U shaped recovery?

The best way to summarise my view is in the graphic below via SEB and for further thoughts on this check out my LinkedIn post from earlier in the week HERE.

Over the weekend, the latest coronavirus data via the FT shows deaths in Italy and Spain are plateauing but continue to rise at a rapid pace in both the US and UK.

One of the main contributing factors for this was the relatively slow response administered by the respective governments as compared to the more draconian measures adopted in the Far East. So for this week, President Trump and UK Prime Minister Boris Johnson will remain under pressure politically.

Global numbers are likely to rise further with the total at time of writing above 1.2mln confirmed cases with a death toll of 65,884.

From a markets perspective, the two main areas I am watching are:

  1. The rate of cases/deaths in the US and UK

  2. Any re-acceleration in countries such as Italy and Spain

Last week saw some incredible moves in the oil market. As we had written about in The Macro Menu before, the growing pressure on Trump to intervene in the Saudi/Russia standoff came to fruition but in typical Presidential form the commander and chief set the bar high (too high in my opinion) for OPEC+ and other producers to come to a compromise to drastically cut global crude supply by between 10-15 mbpd.

An emergency meeting was scheduled for Monday and underpinned the rally into the close on Friday, but that date has already been delayed according to reports over the weekend. A tentative date of either the 8th or 9th of April has been pencilled in but given the track record of oil producing nations it would be of little surprise to see this delayed once more.

Therein lies the problem and what will fundamentally be important to track for crude traders this week as markets inherently trade forward looking expectations.

Trump's proposed cut would be equivalent to 10% of global supply, and at the same time at a press briefing from the White House on Saturday, he threatened to use tariffs if needed to protect the domestic oil industry.

Importantly last week, oil managed to close technically above an important level in WTI crude at $28.49. However, although I see a deal being struck at some point (given the necessity to do so), I think the market may have gotten ahead of itself on how quickly a resolution will be found and now Trump has set out the marker of >10mln anything short of that (most likely) will be a disappointment.

Together in context, with the economic reality of the impact of COVID-19, the bullish end to last week might not last long. Analysts at Goldman Sachs have said that the demand impact might be ~26 mbpd, so even a cut to the magnitude of 10 mln would not be enough to move the price long-term.

Have a great week ahead and remember to subscribe to the Amplify Trading YouTube channel to receive my latest markets insights.

Anthony Cheung

Head of Market Analysis



Monday: CN Holiday, AU MI Inflation Gauge, GE Factory Orders, UK GfK Consumer Confidence, Construction PMI, SP Consumer Confidence, EU Sentix Investor Confidence

Tuesday: JN Housing Spending, Leading Index, 30-yr Auction, AU RBA Interest Rate Decision, Trade Balance, GE Industrial Production, FR Current Account, Trade Balance, IT Retail Sales, EU Eurogroup Meeting, UK Halifax House Prices, Labour Productivity, US IBD/TIPP Economic Optimism, JOLT's Job Openings, 3-yr Auction, Consumer Credit, Weekly API Inventory, CA Ivey PMI, NZ GDT Price Index

Wednesday: JN Core Machinery Orders, Current Account, Economy Watchers Current Index, AU Home Loans, GE 10-yr Auction, US Weekly DoE Inventories, 10-yr Auction, FOMC Meeting Minutes, Tentative OPEC+ meeting

Thursday: AU RBA Financial Stability Review, GE Trade Balance, IT Industrial Production, 3/7/30-yr Auction, UK GDP, Industrial/Manufacturing Production, Trade Balance, RICS House Price Balance, UK Construction Output, Index of Services, NIESR GDP Estimate, US PPI, Weekly Jobless Claims, University of Michigan Sentiment (P), Wholesale Inventories, 30-yr Auction, WASDE Report, CA Unemployment Rate, Employment Change

Friday: Good Friday (Mainland Europe, UK & US), JN PPI, CN CPI/PPI, US CPI, Baker Hughes Rig Count, Federal Budget Balance

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