MARKET BRIEFING: Monday 20th April 2020
THE WEEK AHEAD: Sunday 19th April 2020
US Initial Jobless Claims have been a headline favourite for mainstream media given the weekly releases providing more immediate insight as to the severity of the situation in the US. This week, the number is expected to decline for the 3rd week, but remain sharply above previous crisis peaks.
At this pace it would mean that April's US Non-Farm Payrolls report should show a loss of jobs in the 20mln range, which would be close to the equivalent of the entire population of Australia, a stark difference to the more graduated impact of the Global Financial Crisis.
Manufacturing and Service PMI data this week will further solidify the economic reality of global lockdowns. UK retail sales on Thursday may show some degree of front loading as consumers stockpiled before the closure but the figure is likely to mirror the recent US numbers which printed at the worst level since the series began in 1991.
THE SLOW PATH BACK TO NORMALITY
Perhaps the bigger question now is about the unwinding of lockdown. The trade off between re-opening the economy and putting real lives at risk has tangible implications on both sides. Last week Trump announced his three phased approach - and the UK is believed to be adopting a similar strategy - but much of this comes down to more large scale testing, something that despite the political pledges, has been lacklustre at best.
Further complications have emerged over the weekend amid reports in the Telegraph citing the World Health Organisation who have said that currently there is no evidence to support the belief that people who have recovered from coronavirus then have immunity (HERE).
From a practical point of view, last Thursday night saw a pop in stock futures after reports Gilead Sciences had published positive results in recent trials but any gains quickly faded the following morning. However, given the market's sensitivity to this topic it would be prudent to start familiarising yourself with the drugs, vaccines and other therapies currently in development HERE.
PASSING THE BUCK
US President Donald Trump has warned China that it should face grave consequences if it was "knowingly responsible" for the coronavirus pandemic. This in combination with his u-turn last week to hand over implementation of re-opening plans to state governors, shows further positioning by the commander-in-chief to distance himself from all responsibility for the impending economic downturn in America. As such, expect much more China bashing over the coming months.
Despite this increase in confrontation might China actually welcome Trump securing a 2nd term? American political scientist Ian Bremmer put out an interesting take on proceedings that I recommend you take a look at HERE.
WHATEVER IT TAKES MEANS MORE!
Politico reported on Sunday that Europe will need to find another EUR 500bln to finance the economic recovery from COVID-19, citing Klaus Regling, the director-general of the European Stability Mechanism (ESM). This comes after European officials approved with gritted teeth a package for EUR 540bln last week and raised the idea of a Recovery Fund financed via Eurobonds - a contentious issue amongst several Euro-zone members.
Markets will be most sensitive to developments this Thursday as EU leaders hold a teleconference on COVID-19, so keep an eye on the EUR and Italian paper which have been under pressure as the idea of common debt issuance has come under firm resistance.
OIL REMAINS IN ICU FOR NOW
I spoke at length in last week's briefings why I feel oil remains susceptible to further downside short-term given my view that the historic OPEC+ pact will be insufficient to offset the epic demand shock triggered by the pandemic.
Unsurprisingly, Saudi Arabia and Russia recommitted their intention to do "whatever is necessary" last week but their persistent rhetoric is offering less market response over time and given the dire state of several more economic indicators this week, a deeper move remains a distinct possibility.
The one area to watch will be the pace at which US oil and gas rigs decline. Since mid-March, the US rig count is down nearly 250, or 30% and I would foresee this pattern continuing for several weeks, resulting in a natural reduction in output to accompany what will likely be strong compliance from OPEC+.
So although I think oil may weaken short-term, I remain bullish about its prospect for the 2H of this year.
EARNINGS SEASON - ROUND 2
During the upcoming week, 96 S&P 500 companies are reporting with 6 of the Dow 30 components. Below is a summary of the most anticipated ones to watch via Earnings Whisper.
Monday: JN Trade Balance, GE PPI, EU Current Account, Trade Balance, UK Rightmove House Price Index, US Chicago Fed National Activity, BoE's Haldane, Broadbent Speak, US Earnings: IBM
Tuesday: AU RBA Minutes, GE ZEW Economic Sentiment, 2-yr Auction, SP Trade Balance, UK Unemployment Rate, Employment Change, Average Earnings, 5-yr Auction, US Existing Home Sales, Weekly API Inventories, NZ GDT Price Index, CA Retail Sales, RBA's Lowe Speaks, US Earnings: Coca-Cola, Phillip Norris, Lockheed Martin, Netflix, EU Earnings: SAP
Wednesday: AU MI Leading Index, FR Business Survey, IT Industrial Orders/Sales, EU Consumer Confidence, UK CPI, PPI, RPI, US House Price Index, Weekly DoE Inventories, CA CPI, New Housing Price Index, US Earnings: Delta Airlines, AT&T
Thursday: AU Manufacturing/Service PMI, JN Manufacturing/Service PMI, Leading Index, FR Business Survey, GE GfK Consumer Climate, FR/GE/EU Manufacturing/Service PMI (P), EU Video-Conference On COVID-19, UK Manufacturing/Service PMI (P), CBI Industrial Trends Orders, Weekly Jobless Claims, Manufacturing/Service PMI, New Home Sales, KF Fed Manufacturing PMI, US Earnings: Eli Lilly, SouthWestern, Intel, SZ Earnings: Credit Suisse
Friday: JN National CPI, All Industries Activity Index, GE Ifo Business Climate, IT Consumer/Business Confidence, SP PPI, UK Retail Sales, UK S&P Sovereign Review, GfK Consumer Confidence, US Durable Goods Orders, Michigan Consumer Sentiment (F), Baker Hughes Rig Count, CA Budget Balance, US Earnings: American Express, Verizon, EU Earnings: Sanofi, ENI
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