Week Ahead: FOMC minutes to confirm Fed policy rethink?

It’s a busy week for central banks this week. Firstly, we start with the FOMC’s meeting minutes from its June policy talks. Tapering was on the agenda, whilst policymakers started to pull forward when they think rates should rise, so getting beneath their skin is critical for understanding market movement.

The Reserve Bank of Australia shares its latest update too as rising Covid cases and lockdowns kick in. Will this inspire a policy rethink?

The impact of the delta variant on Eurozone recovery will be in focus too as the EU shares its latest economic outlook.

FOMC meeting minutes are the week’s big release, coming on Wednesday.  

It will be interesting to see in the Fed’s internal discussions after June’s meeting. Then, the Fed signalled it won’t let inflation run hot and that a rate hike may be coming a little earlier than anticipated. 

The Fed’s median projection showed they see lifting their benchmark rate to 0.6% from near zero by the end of 2023. In March, it was expected that rates would hold steady across that year. 

Tapering was also on the agenda. We know Chairman Powell et al discussed an eventual reduction in the Fed’s bond buying programme, but, in the post-meeting statement, no indicators towards when this might occur were given.  

The Fed is still making around $120bn in purchases every month as part of its overall Covid economy strategy.  

A window into any central bank’s thinking is essential for market observers. Investors are having to recalibrate their high-inflation bets in response to the Fed’s hawkish June tilt.  

What we’re seeing now is a US economy in a transitionary phase. No economy, no matter how large, can afford to simply ride the waves. It has to be responsive. The Fed has done that, but it will be interesting to see inside the Fed at this crucial juncture. 

Keeping with central banks, the Reserve Bank of Australia speaks on Wednesday. Covid-19, in a country that largely appeared to have it under control, is starting to bite once more. The delta variant has begun its spread throughout Australia. A new wave of lockdowns is in place. 

Roughly 80% of Australia’s population is back under stay-at-home orders or restricted movement. 

Could this prompt a change in RBA thinking ahead of its July 6th meeting? Governor Lowe and his team are already in a dovish economic stance. Rates have not shifted from their historic 0.10% level since November. 

Speaking after last month’s meeting, Governor Lowe said: “The economic recovery in Australia is stronger than earlier expected and is forecast to continue. The bank’s central scenario is for GDP to grow by 4.75% over this year and 3.5% over 2022. This outlook is supported by fiscal measures and very accommodative financial conditions.”  

Of course, that statement was made when the road to recovery hadn’t been blocked. The RBA will need to act with clarity and precision to ensure it can keep Australia’s economy on the right track. We’ll learn more when the RBA speaks on Wednesday. 

EU economic forecasts are coming this week, too.  

The bloc appears to be coming out of the worst of the pandemic relatively strongly. We’ve seen strong PMI numbers and GDP forecasts are strong too. We’ve also seen some European Central Bank members suggest pulling back of the PEPP stimulus package could be on the cards. 

Regarding PEPP, ECB council member and Deutsche Bundesbank President Jens Weidmann has suggested the programme could be wound up prior to the original March 2022 deadline. The ECB will have pumped €2.2 trillion into the Eurozone economy through its PEPP programme by then. However, to change this would require strong economic recovery and complete removal of Covid-caused restrictions. 

With the delta variant beginning to bite, full removal of restrictions seems unlikely. In fact, how the EU responds to the new wave of cases will be crucial. Will it have to retool thinking and economic forecasts in response? 

Still, the analysts’ outlook is broadly positive. S&P Global, for instance, has made a few tweaks. 

“We revised upward our forecast for eurozone growth to 4.4% this year and 4.5% in 2022, seeing broader implementation of fiscal stimulus under the Next Generation EU plan and weaker contraction of GDP in the first quarter,” the ratings house said. 

“Long-term scarring to the economy is likely to be limited by Europe’s coordinated fiscal and monetary policy response, paving the way for the output gap to close by 2024.” 

Major economic data 

Date  Time (GMT+1)  Asset  Event 
Mon 05-Jul  3.30pm  CAD  BOC Business Outlook Survey 
       
Tue 06-Jul  5.30am  AUD  RBA Rate Statement 
  5.30am  AUD  Cash Rate 
  10.00am  EUR  EU Economic Forecasts 
  10.00am  EUR  ZEW Economic Sentiment 
  10.00am  EUR  German ZEW Economic Sentiment 
  3.00pm  USD  ISM Services PMI 
       
Wed 07-Jul  3.00pm  CAD  IVEY PMI 
  3.00pm  USD  JOLTS Job Openings 
  7.00pm  USD  FOMC Meeting Minutes 
       
Thu 08-Jul  2.30am  AUD  Retail Sales m/m 
  1.30pm  USD  Unemployment Claims 
  3.30pm  GAS  US Natural Gas Inventories 
  4.00pm  OIL  US Crude Oil Inventories 
       
Fri 09-Jul  1.30pm  CAD  Employment Change 
  1.30pm  CAD  Unemployment Rate 

 

Key earnings data 

Date  Company  Event 
Tue 06-Jul  Ocadao Group  Q2 2021 Earnings 
     
Wed 07-Jul  Aeon  Q1 2021 Earnings 
     
Thu 08-Jul  Levi’s  Q2 2021 Earnings 
     
Fri 09-Jul  Tryg  Q2 2021 Earnings 

Week Ahead: US jobs report holds key to market direction amid inflation fears

US nonfarm payrolls dominate the data calendar this week. The key jobs market metric is usually a massive market mover, so a lot of attention will be on the state of the nation’s labour market when the latest reading is printed on Friday.  

OPEC-JMMC monthly meetings kick off mid-week as oil markets strengthen globally. The Reserve Bank of Australia also shares its latest cash rate decision –likely a copy-paste of May’s non-mover. 

Starting with the US, the country will be hoping some of March’s job market fervour shows up in May’s reading following April’s bust. Last month’s NFP saw roughly a quarter of expected new jobs created, falling far below estimates. 

April’s numbers clocked in at 266,000 jobs created. Estimates were hoping for over a million, buoyed by the rapid economic growth and March’s NFP coming in at 916,000. 

As of the end of April, 9.8 million Americans were still unemployed. What’s interesting is that job openings at the end of March totalled 8.1 million, substantially narrowing the wedge. Labour demand and labour supply are realigning but aren’t quite level yet, causing some friction. 

There are still concerns amongst the general population about contracting the virus, despite 50% of eligible recipients getting vaccines. Two-thirds of school age children have not returned to the classroom. Some may not be willing to give up their unemployment benefits just yet either. 

The jobs report will be closely watched by the market as a guide on how soon the Federal Reserve may be expected to start removing accommodation. The Fed has tied its colours to the employment mast and the slower the gains in employment, the easier Fed policy will remain. Inflation complicates the picture but thus far markets believe the Fed when it says it will look through ‘transitory’ price pressures.  

OPEC-JMMC meetings are slated for June 1st. The cartel’s 2021 mission has been to protect oil markets and strengthen prices. Production cuts have been the key here. Full pre-pandemic output volumes are yet to be re-established. Despite global economies reopening, and oil demand rising, OPEC and allies are still feeling cautious. 

Even so, more crude is coming from OPEC members. They have been gradually tapering output curbs for the past couple of months. June’s meeting will be cementing plans for July and August, i.e. whether to ramp up the taper or keep it in line with the cartel’s original plan. 

At the April 1st meeting, OPEC-JMMC agreed to bring 2.1m barrels per day (bpd), back to markets between May-July. Cuts will be eased back to 5.6m bpd.  

OPEC is banking on higher oil demand this year. Its recovery outlook suggests daily demand will reach 6m bpd by the end of 2021 – a major rise against 2020’s levels, but still some 3.5bpd less than pre-pandemic levels. 

While vaccine rollout has been successful in key importing countries, there are still concerns. Rising coronavirus cases in India, the world’s third-largest oil importer, has weighed heavily on OPEC. There is still lots of ground to cover before global oil markets resemble anything like their pre-Covid 19 selves. 

Attention will also be on the Reserve Bank of Australia – the next central bank to fill us in on any upcoming tweaks to Australia’s financial policy. 

A cash rate decision is due. Chances are nothing momentous is coming. Australia’s cash rate has remained at 0.10% since November 2020. Governor Dr Philip Lowe has indicated it’s probably not going to rise in 2021. Based on previous statements, we won’t see an Australian cash rate hike until 2024 at the earliest.  

Dr Lowe states inflation targets and a lower unemployment rate are the key metrics the RBA is using as cash rate hike triggers. The RBA expects inflation to be 1.5% in 2021, it said in its May statement, and 2% in mid-2023. Before it raises rates, the Bank has repeatedly said it wants inflation to be ‘comfortably’ within the 2-3% range. 

In terms of labour markets, the RBA expects unemployment rates to reach 4.8% by year-end 2021 before dropping slightly to 4.4% in 2022. 

Major economic data 

Date  Time (GMT+1  Asset  Event 
Mon 31-May  2.00am  CNH  Manufacturing PMI 
       
Tue 01-Jun  All Day  Oil  OPEC-JMMC Meeting 
  5.30am  AUD  Cash Rate 
  5.30am  AUD  RBA Rate Statement 
  1.30am  CAD  GDP m/m 
  3.00pm  USD  ISM Manufacturing PMI 
       
Wed 02-Jun  2.30am  AUD  GDP q/q 
       
Thu 03-Jun  2.30am  AUD  GDP m/m 
  3.00pm  USD  ISM Services PMI 
  3.30pm  Nat gas  US Natural Gas Inventories 
  4.00pm  Oil  US Crude Oil Inventories 
       
Fri 04-Jun  1.30pm  CAD  Employment Change 
  1.30pm  CAD  Unemployment Rate 
  1.30pm  USD  Average Hourly Earnings m/m 
  1.30pm  USD/Indices/Gold  Non-farm Employment Change 
  1.30pm  USD  Unemployment Rate 

 

Key earnings data 

Date  Company  Event 
Tue 01-Jun  Zoom  Q1 2022 Earnings 
  Scotiabank  Q2 2021 Earnings 
  Hewlett Packard  Q2 2021 Earnings 
     
Wed 02-Jun  Splunk  Q1 2022 Earnings 
     
Thu 03-Jun  Broadcom  Q2 2021 Earnings 
  Slack  Q1 2022 Earnings 

 

Week Ahead: NFPs plus BOE & RBA rate decisions

Nonfarm payroll data comes this Friday. We’ve seen the US economy surge back to life in March, so we’ll see if the major momentum keeps going.

Rate decisions are on their way too from the Bank of England and Reserve Bank of Australia, but as is the theme for this year, we’re expecting no major changes in direction. It’s still earnings season.

Hundreds of large caps are reporting in on what’s been a bumper quarter for some.

US Nonfarm Payrolls – Can April match March’s blockbuster figures?

April’s Nonfarm payrolls are released on Friday. All eyes will be on the US job market after March’s data blew past expectations, signalling a US economy roaring back to life.

NFPs surged 916,000 in March – smashing the Dow Jones estimate of 675,000. Biggest gains were seen in the leisure and hospitality sector, adding 280,000 new monthly hires.

Construction built on previous month’s success with 110,000 payrolls added in the month. Education experienced a boom upon US school reopenings. Local, state and private education institutions combined to hire 190,000 more employees for the month.

Economic growth signs abound. Business activity is drawing close with pre-pandemic levels, reaching 93.4% on Jefferies JeffData US economic activity tracker. GDP growth prospects are high too.

ISM manufacturing PMI data is also on tap this week, adding to the mix of inbound economic indicators, following excellent performance in March. The index rated 64.7% last month, showing a substantial rise in manufacturing activity compared with last year.

The onus is on sustaining momentum in these vital economic areas.

No change for Bank of England policy this month

Don’t expect any change to monetary policy at the Bank of England’s May 6th meeting, however the much brighter economic outlook certainly points to the Bank being able to wind down its emergency mode earlier.

With QE running at a pace of slightly more than £4bn in gilt purchases weekly, the focus will be on at what point the MPC chooses to signal it will slow this down later this year.

The contraction in GDP in the first quarter was not as bad as feared as the economy showed far greater resilience to lockdown 3 than lockdown 1, whilst the success of vaccinations is becoming abundantly clear and means lifting of all restrictions by June 21st is looking more and more likely.

Therefore, there is a risk that the Bank announces plans to taper asset purchases at this meeting, sooner than the market is maybe anticipating. This would likely be positive for sterling since FX markets continue to under-price MPC hawkishness.

The Bank forecast a 4% decline in Q1 (quarter-on-quarter), however the data so far indicates that the contraction was milder than the February projection. Growth estimates for the full year may well be revised higher from the current 5% level. This may provide ammunition for an earlier taper, however the MPC may prefer to wait longer (say June, when the extent of the reopening will be better appreciated) in order to engineer a steeper taper in the second half of the year.

No cash rate change for RBA but QE extension possible

Mirroring the BOE, The Reserve Bank of Australia is expected not to make any major shifts in policy when Philip Lowe and co. make the month’s rate statement this week.

“The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3%. For this to occur, wages growth will have to be materially higher than it is currently,” said RBA Gov. Philip Lowe said in March’s statement. The rate is staying put at 0.10% for the foreseeable.

Significant gains in employment and a tighter overall labour market are the factors that will force Lowe’s hand. Right now, the RBA doesn’t forecast those returning until 2024 at the earliest.

Instead, we may see an extension to Australia’s quantitative easing programme. Westpac analysts think a third $100bn bond buying regime is on the way, in a move designed to “complement the decision to extend the Yield Curve Control (YCC) Policy to purchase the November 2024 bond at the cash rate of 0.1%”.

Overall, the RBA sentiment is good.

In its March statement, the Central Bank said: “The economic recovery in Australia is well under way and is stronger than had been expected. The unemployment rate fell to 5.8 per cent in February and the number of people with a job has returned to the pre-pandemic level.

“GDP increased by a strong 3.1 per cent in the December quarter, boosted by a further lift in household consumption as the health situation improved. The recovery is expected to continue, with above-trend growth this year and next. Household and business balance sheets are in good shape and should continue to support spending.”

The earnings barrage continues on Wall Street

Large caps are preparing for another Wall Street earnings blitz this week.

So far, it looks like it’s been higher performing quarter for reporting firms across the board. Companies have so far reported aggregate earnings 23.6% above expectations, according to FactSet’s Earnings Insight report dated April 23rd.

Big hitters like Apple and Alphabet have gone and posted strong quarters, although some major tech players like Spotify and Netflix, have seen key subscriber and user metrics underperform.

Looking forward to this week though, there’s an assortment of large caps reporting in. Tech firms PayPal and Square are at the head of the que, as is Covid-19 vaccine pioneer Pfizer. Its vaccine rollout has been instrumental in helping economies return to normality, so we’re likely looking at a successful quarter for the pharmaceutical firm.

See below for a roundup of large cap firms reporting earnings in the week ahead.

Major economic data

Date  Time (GMT+1)  Currency  Event 
Mon 03-May  3.00pm  USD  ISM Manufacturing PMI 
       
Tue 04-May  5.30am  AUD  Cash Rate 
  5.30am  AUD  RBA Rate Statement 
  Tentative  AUD  Annual Budget Release 
  11.45pm  NZD  Employment Change q/q 
  11.45pm  NZD  Unemployment Rate 
       
Wed 05-May  10.00am  EUR  EU Economic Forecasts 
  3.00pm  USD  ISM Services PMI 
  3.30pm  USD  US Crude Oil Inventories 
       
Thu 06-May  12.00pm  GBP  BOE Monetary Policy Report 
  12.00pm  GBP  MPC Official Bank Rate Votes 
  12.00pm  GBP  Monetary Policy Statement 
  12.00pm  GBP  Official Bank Rate 
  3.30pm  USD  US Natural Gas Inventories 
       
Fri 07-May  1.30pm  CAD  Employment Change 
  1.30pm  CAD  Unemployment Rate 
  1.30pm  USD  Average Hourly Earnings m/m 
  1.30pm  USD  Nonfarm Employment Change 
  1.30pm  USD  Unemployment Change 

Key earnings data

Date  Time (GMT+1)  Currency  Event 
Mon 03-May  3.00pm  USD  ISM Manufacturing PMI 
       
Tue 04-May  5.30am  AUD  Cash Rate 
  5.30am  AUD  RBA Rate Statement 
  Tentative  AUD  Annual Budget Release 
  11.45pm  NZD  Employment Change q/q 
  11.45pm  NZD  Unemployment Rate 
       
Wed 05-May  10.00am  EUR  EU Economic Forecasts 
  3.00pm  USD  ISM Services PMI 
  3.30pm  USD  US Crude Oil Inventories 
       
Thu 06-May  12.00pm  GBP  BOE Monetary Policy Report 
  12.00pm  GBP  MPC Official Bank Rate Votes 
  12.00pm  GBP  Monetary Policy Statement 
  12.00pm  GBP  Official Bank Rate 
  3.30pm  USD  US Natural Gas Inventories 
       
Fri 07-May  1.30pm  CAD  Employment Change 
  1.30pm  CAD  Unemployment Rate 
  1.30pm  USD  Average Hourly Earnings m/m 
  1.30pm  USD  Nonfarm Employment Change 
  1.30pm  USD  Unemployment Change 

Week Ahead: RBA speaks, US NFPs released & OPEC clash

US Nonfarm Payrolls are reported this week, showing if the US job market is gaining momentum or struggling to leave the doldrums. Elsewhere, a clash of the titans is gearing up in OPEC, and the RBA is set to make its latest rate statement, with no major change expected. 

Reserve Bank of Australia makes rate statement 

Australia, like New Zealand, had one of the best Covid responses out there. Economically, while by no means perfect, down under looks stronger than other nations reeling in Covid’s wake. 

What’s on the agenda at the Reserve Bank of Australia’s (RBA) next rate announcement? Yields are rising globally, so is the RBA prepping a rate hike? Possibly, but while the Aussie economy recovered faster than others, hikes still seem a long way away. It’ll be a good idea to watch its next moves carefully. 

At its January statement, the RBA kept its three-year bond and cash rate targets at 0.1%. It also reaffirmed its commitment to not raise actual inflation until it is in the 2-3% target range. 

Major banks do not see a wild change in RBA policy in March. ING, Westpac, TDS and ANZ all predict no changes, with Australia likely to stay on its current economic course. 

The RBA has also pledge to increase its bond-buying programme up to A$100 billion ($76.4 billion) from mid-April to help support jobs and boost inflation. But the Conservative government has also said it is doing away with its JobKeeper payments, fortnightly payments worth A$1,000 (US$775), as the economy is performing above expectation. That has caused a little consternation amongst furloughed Aussies, like those in the aviation industry, but could be a sign that the Australian economy is healthier than many of its contemporaries. 

US nonfarm payrolls released 

Observers will be looking very carefully at this Friday’s US Nonfarm Payroll data as it will give some indicators about the apparent strength or weakness of the US labour market. 

January saw 49,000 jobs added to the US economy after December’s loss of 227,000. Growth sure, but way below the +100,000 expected.  

The wider January Job Report highlights the difficult position US labour is in right now.  

Leisure and hospitality continues to take body blows, with 61,000 sector workers losing their jobs in January. The sector has shed 4 million jobs since February 2019, showing the massive damage Covid has done. But if people can’t go out and enjoy themselves, it’s only going to continue. It’s a sad story, but one that will only end once the US returns to normality. Retail payrolls dropped by 37,800 after gaining 134,900 in December. 

But some areas of the job market are improving. Notably, professional and business services added nearly 100,000 jobs after adding back 156,000 in December. And wholesale trade payrolls rose by more than 14,000 after a rise of 15,500 in December. Private payrolls too have shot up, according to ADP’s monthly jobs report, rising 174,000 in January. 

January also saw a slight fall in the US unemployment rate, from 6.7% to 6.3%. 

So, mixed emotions ahead of next week’s NFP report. While jobs have been added to the economy, the volume hasn’t been enough to really inspire massive confidence. The promise of future stimulus remains, but so too does the Covid menace. Get that under control, and a better job market is likely to follow (if you’re reading President Biden!). 

OPEC meeting – tension on the way? 

A house divided against itself cannot stand, as Abraham Lincoln once said. Could the same be happening for OPEC?  

It looks like its biggest swingers are ready to clash once more. In the blue corner sits Saudi Arabia, top OPEC dog and world’s largest oil producer. In the red, we find Russia, pushing once more to taper oil cuts and start pumping more out. 

Saudi Arabia has always been the more cautious of the top OPEC players. It recently, voluntarily, cut a further million bpd out of its production in order to protect prices, on top of its OPEC commitments.  

7m barrels per day remains out of global supplies thanks to OPEC cuts. Its partially this that has helped oil rally recently, with WTI and Brent trading above $62 and $65 respectively.  

But Russia is keen to bring more oil to markets. Oil is key to Russia’s GDP, accounting for something like 40% of annual government revenues, so its little wonder to see it pushing hard to increase production levels.  

Global demand, however, remains tight. Will there has been some pick up with Covid cases and hospitalisations dropping in the US, for example, and the UK creating a roadmap to get out of lockdown on the strength of its vaccine programme, lockdown measures remain right around the world. 

OPEC and allies’ March meeting will be interesting. Traders and oil observers will only be too aware of last year’s March antics, where Russia and Saudi clashes led to a suspension of OPEC for a month.  

Major economic data 

Date  Time (GMT)  Currency  Event 
Mon 01 Mar  01.00am  CNH  Manufacturing PMI 
  9.00am  EUR  Final Manufacturing PMI 
  9.30am  GBP  Final Manufacturing PMI 
  2.30pm  CAD  Manufacturing PMI 
  3.00pm  USD  ISM Manufacturing PMI 
       
Tue 02 Mar  3.30am  AUD  Cash Rate 
  3.30am  AUD  RBA Rate Statement 
  1.30pm  CAD  GDP m/m 
       
Wed 03 Mar  12.30am  AUD  GDP q/q 
  1.15pm  USD  ADP Non-Farm Employment Change 
  3.00pm  USD  ISM Services PMI 
  3.30pm  USD  US Crude Oil Inventories 
       
Thu 04 Mar  All Day  All  OPEC-JMMC Meeting 
  3.30pm  USD  US Natural Gas Inventories 
       
Fri 05 Mar  1.30pm  USD  Average Hourly Earnings m/m 
  1.30pm  USD  Nonfarm Employment Change 
  1.30pm  USD  Unemployment Rate 

 

Key earnings data 

Date  Company  Event 
Mon 1 Feb  Zoom  Q4 2021 Earnings 
  Novavax  Q4 2021 Earnings 
     
Tue 2 Feb  Target  Q4 2020 Earnings 
  Hewlett Packard  Q1 2021 Earnings 
     
Wed 3 Feb  Prudential  Q4 2020 Earnings 
  Vivendi  Q4 2020 Earnings 
  Gazprom Neft  Q4 2020 Earnings 
  Marvell Technology  Q4 2021 Earnings 
     
Thu 4 Feb  Broadcom  Q1 2021 Earnings 
  Sberbank  Q4 2020 Earnings 
     
Fri 5 Feb  London Stock Exchange  Q4 2020 Earnings 

Week Ahead: US Election Special

The US Presidential and Senate elections will be the main event in the week ahead, but we’ll also be keeping an eye on meetings of the Federal Reserve and Bank of England. 

Election 2020 

The only show in town (almost) is the US Election on Tuesday. Whilst a result would normally be expected soon after polling booths close, no one is terribly sure when we will know who the next incumbent of the White House will be. Joe Biden holds a commanding lead in the polls at a national level, but it’s closer in the key battleground states that will determine the winner. Donald Trump could yet surprise the pollsters. Meanwhile in the Senate race it’s just as close and could be just as important for the market’s view of getting a stimulus deal done soon after.  

Favouring volatility in futures pricing and potentially in some FX markets overnight will be the way in which calls on individual states are made. With some states processing the in-person ballots before the postal ones are counted, and with some states allowing postal votes to arrive after Nov 3rd (as long as they are postmarked by this date), we could get an inaccurate and uneven sample when the West Coast polls close. If there is no clear result or a contested outcome we can expect volatility to rise again.

We’re hosting a special pre-election webinar on Monday and will be tracking the market reaction live on Wednesday.

Federal Reserve 

Hot on the heels of the US election on Wednesday comes the November two-day meeting of the Federal Open Market Committee (FOMC), at which policymakers are not expected to announce any major shifts. Markets will be looking for additional clarity around how policymakers are approaching the new average inflation target framework. Minutes from the September meeting stressed that while rates will be lower for longer, officials are keen to maintain a degree of flexibility on forward guidance and don’t want to commit unconditionally to keeping rates on the floor.  The FOMC statement and press conference with Jay Powell will take place on Thursday. 

Bank of England 

Ahead of this on Thursday, the Bank of England will issue its latest monetary policy statement amid expectations that rates will go negative. The Bank of England is laying the groundwork for a descent into negative interest rates. In a letter sent to commercial banks on October 12th deputy governor Sam Woods asked firms to detail their “current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration – and the steps that you would need to take to prepare for the implementation of these”. The letter notes that “the financial sector … would need to be operationally ready to implement it in a way that does not adversely affect the safety and soundness of firms”, and explains that “the MPC may see fit to choose various options based on the situation at the time”. It comes after details from the last policy meeting showed that the BoE is actively considering negative rates, whilst Andrew Bailey has been at pains to stress that this does not necessarily mean they will take that route. 

There is clearly a debate within the Bank’s Monetary Policy Committee (MPC) going on right now that we are seeing play out in public. In September deputy governor Dave Ramsden issued a note of caution only a day after Silvana Tenreyro pointedly backed negative rates. It looks as though there are some clear ideological disputes among rate setters that needs to be worked out over the autumn, implying as Andrew Bailey has suggested that negative rates are not on the near horizon, albeit they are being considered actively. The problem for the Bank would be fresh lockdowns and/or an unemployment crisis heading into Christmas that could put pressure on the MPC to act. 

RBA  

The Reserve Bank of Australia could well cut interest rates for the first time since March when it convenes this week, with markets increasingly expecting a reduction in the cash rate from 0.25% to 0.1%. The RBA left interest rates on hold in October, refraining from a cut below 0.25% but maintaining a decidedly dovish bias that still indicates a further cut may occur this year. The RBA said it will keep monetary policy easy “as long as is required” and will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3% target band. It kept its options open and stressed that it will continue to consider additional monetary easing. 

Economic data 

Most if not all the economic data is out of date due the reappearance of the virus and restrictions, as well as the political landscape in the US likely changed even if Donald Trump remains president. Nevertheless, the markets will be watching the latest PMIs and nonfarm payrolls for the US. 

Top Economic Data This Week

Open the economic calendar in the platform for a full list of events.

Date  Event 
2-Nov  China Caixin manufacturing PMI 
2-Nov  UK manufacturing PMI 
2-Nov  US ISM manufacturing PMI 
3-Nov  US ELECTION 
3-Nov  Reserve Bank of Australia monetary policy decision 
3-Nov  New Zealand unemployment rate 
4-Nov  US ELECTION RESULTS EXPECTED 
4-Nov  US ADP employment change 
4-Nov  US ISM manufacturing PMI 
4-Nov  EIA crude oil inventories 
5-Nov  Bank of England monetary policy decision 
5-Nov  US weekly initial jobless claims 
5-Nov  FOMC statement and press conference 
6-Nov  RBA statement 
6-Nov  US nonfarm payrolls 
6-Nov  Canada Ivey PMI 

 

Top Earnings Reports This Week

Don’t forget to tune into XRay for more updates.

Date  Company   
2-Nov  PayPal Inc  Q3 2020 Earnings 
2-Nov  Estée Lauder  Q1 2021 Earnings 
2-Nov  Mondelez  Q3 2020 Earnings 
3-Nov  Aramco (Saudi-Aramco)  Q3 2020 Earnings 
3-Nov  Ferrari N.V.  Q3 2020 Earnings 
3-Nov  Bayer  Q3 2020 Earnings 
4-Nov  QUALCOMM Inc.  Q4 2020 Earnings 
5-Nov  T-Mobile US Inc  Q3 2020 Earnings 
5-Nov  AstraZeneca PLC  Q3 2020 Earnings 
5-Nov  Bristol-Myers Squibb Co.  Q3 2020 Earnings 
5-Nov  Linde plc  Q3 2020 Earnings 
5-Nov  Enel S.p.A.  Q3 2020 Earnings 
5-Nov  Zoetis Inc (A)  Q3 2020 Earnings 
5-Nov  Square  Q3 2020 Earnings 
5-Nov  Barrick Gold Corp.  Q3 2020 Earnings 
6-Nov  Toyota Motor Corp.  Q2 2021 Earnings 
6-Nov  CVS Health Corp  Q3 2020 Earnings 
6-Nov  Richemont  Q2 2021 Earnings 

 

Trump returns, big tech faces antitrust concerns

Don’t be afraid: President Trump returned to the White House, but it might not be for much longer. Whilst Trump almost revelled in his victory over the virus, telling Americans not to fear it, Joe Biden’s lead in the polls is rising. Trump has work to do in the battlegrounds to swing back in his favour.

Wall Street climbs on stimulus hopes

Wall Street rallied as we saw decent bid come through for risk that left the dollar lower and benchmark Treasury yields higher amid hopes that policymakers in Washington are close to doing a deal on stimulus. House Democrat leader Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke yesterday but failed to reach agreement on a fresh stimulus package.

Negotiations are due to resume today and whilst the mood seems to be better, getting agreement so close to the election will be tough but not impossible.

The S&P 500 rose 1.8% to close at the high of the day above the  3,400 level but the intra-day high at 3,428 from Sep 16th remains the top of the channel that bulls will look to take out – failure here may call for a retreat towards the middle of the range again.

Stimulus hopes will drive sentiment, but election risk is also a factor. Vix futures for Oct at $30.86 compared with November’s $32.23.

European markets turned lower in early trade on Tuesday as bulls failed to follow through on the relief rally on Monday – still very much range bound.

As noted last week the key is the 3300 level on the Stoxx 50 and 6,000 on the FTSE 100 to signal the market has broken the range. The S&P 500 is closer to doing it.

Benchmark yields rose firmly with 10-year Treasuries breaking out of the recent dull range towards 0.80%, settling at 0.77% near 4-month highs. The 30-year yield also hit its highest since Jun 9th.

With polling and odds improving for a Democrat clean sweep, the market is starting to price in more aggressive stimulus, greater issuance and bigger deficits. Fed chair Jay Powell speaks later today about the US economic outlook at the National Association of Business Economics annual meeting.

Cable eyes Brexit latest Brexit headlines

Brexit talks rumble on – are we closer to a deal? Deadlines are fast approaching and on the whole it seems more likely than not that we at least see a skinny deal or sorts.

EC vice president Maros Sefcovic has been on the wires this morning underlining that ‘full and timely’ implementation of the withdrawal agreement is not up for debate. The British Parliament and government say otherwise.

Meanwhile the European Parliament is not budging on its demands over the EU budget – whilst the recovery fund was announced to much fanfare, it needs to be delivered for Europe’s economy to recover more quickly than it is.

Democrats to target tech giants

Big tech stocks need monitoring after reports that a Democrat-led House panel will call for an effective breakup of giants like Apple, Amazon and Alphabet. It comes after a long anti-trust investigation by the panel led by Democratic Representative David Cicilline.

If approved and legislation is enacted, it would be the most significant reform in this area since Teddy Roosevelt. Certainly, the concentration of capital in a handful of big tech stocks is worrisome for lots of reason. Even if approved, getting from draft to legislation will not be easy. However, if there were a Democrat clean sweep, it could open the door to some aggressive reforms.

As I noted over a year ago, given that the FAANGs have been at the front of the market expansion in recent years, any breakup or threat of it may act as a drag on broader market sentiment. Calls have been growing louder and louder for the authorities to at least look at antitrust issues for the tech giants.

Political pressure is building – lawmakers sniff votes in tackling big tech. The shift really happened two years ago with the Facebook scandals, which really broke the illusion that Silicon Valley is in it for the little guy.

AUDUSD sinks on dovish RBA meeting

The Reserve Bank of Australia left interest rates on hold, refraining from a cut below 0.25% but maintaining a decidedly dovish bias that still indicates a further cut may occur this year.

The RBA said it will keep monetary policy easy “as long as is required” and will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3% target band. It kept its options open and stressed that it will continue to consider additional monetary easing.

After a decent run since the Sep 25th low AUDUSD was smacked down from its 50-day SMA at 0.7210 to trade around 0.7150. Currently contained by its 50- and 100-day SMAs.

The dollar index broke the horizontal support and the 21-day SMA, with the price action testing the trendline off the September lows. After the RSI trend breach and the MACD bearish crossover flagged yesterday was confirmed. 50-day SMA around 93.25 is the next main support.

The softer dollar gave some support to GBPUSD as it tests the top of the range and big round number and Fibonacci resistance at 1.30 this morning. Markets are also pushing back expectations for negative rates in the UK, which may be feeding through to a stronger pound.

Brexit risks remain but the odds of a deal seem to be better than evens, at least a ‘skinny’ deal that keeps dollar-parity wolves from the door.

The weaker dollar, higher inflation outlook is pushing up gold prices, which have broken above $1,900 but faces immediate resistance at the 21-day SMA on $1,916. Yesterday’s potential MACD bullish crossover has been confirmed.

Week Ahead: Pence vs Harris in focus after messy presidential debate

Vice president Mike Pence and senator Kamala Harris will both be hoping to emerge from this week’s vice presidential debate with more dignity than the presidential candidates did last week. It shouldn’t be hard. Also ahead, there’s plenty from central banks this week, including a rate decision from the RBA and minutes from the latest FOMC and ECB meetings.

US election: More decorum from Pence and Harris in vice presidential debate?

This week sees the second of the US election debates, this time the one and only face-off between vice president Mike Pence and senator Kamala Harris. 

The first presidential debate last week seems to have little impact on the polls, and is viewed as being such an embarrassment that the Commission on Presidential Debates has announced it will make changes to the format of future events in an attempt to make things more orderly. 

One of the changes being considered is to cut candidate’s microphones if they try to interrupt excessively. Although this will impact Trump more than Biden, this might not necessarily disadvantage the President, who didn’t give his opponent much opportunity to slip up last time.

The vice presidential debate gets going at 21.00 ET, October 7th (01.00 UTC, October 8th). The last time Pence appeared in a nationally televised debate was in October 2016. Harris, on the other hand, has had plenty of practice in recent months. 

FOMC and ECB meeting minutes

Sandwiching the vice-presidential debate this week are the Federal Open Market Committee minutes and the European Central Bank accounts. 

The FOMC took the opportunity last month to flesh out its new average inflation targeting strategy, although according to its predictions it’ll be a long time before policymakers are in a position to let inflation run hot. The latest minutes might provide some more clarity, but with the debate following a couple of hours later, markets might not take much notice. 

ECB president Christine Lagarde noted after the latest meeting of the Governing Council that the EURUSD exchange rate had risen notably, although she also stated that “as you know, we don’t target the exchange rate”. The minutes could give more information on how policymakers fear a strong euro might impact their mandate. 

Although EURUSD has retreated after peaking above 1.20 at the start of September, the pairing is trending around the same levels as were seen when the ECB were considering its strength. 

Reserve Bank of Australia interest rate decision

Futures markets are firmly betting that the Reserve Bank of Australia will cut rates to 0% when it meets this week. ASX 30 Day Interbank Cash Rate Futures show a 64% chance of a cut at the time of writing. 

This comes after recent comments from deputy governor Guy Debelle, who used a speech to outline policy tools the RBA is considering to help it meet its twin mandates on employment and inflation. 

Foreign exchange intervention and negative interest rates were both on the list. 

Economic data to watch

In terms of economic data, we’ll be watching the US ISM nonmanufacturing PMI and weekly jobless claims, German industrial production and a slew of data from the UK on Friday, including monthly GDP, industrial production and construction output figures.

Highlights on XRay this Week 

Read the full schedule of financial market analysis and training.

17.00 UTC 05-Oct Blonde Markets
From 15.30 UTC 06-Oct Weekly Gold, Silver, and Oil Forecasts
17.00 UTC 07-Oct Webinar: 10 Trading Rules for Every Level of Trader
17.00 UTC 08-Oct Election2020 Weekly
12.00 UTC 09⁠-⁠Oct Platform Walkthrough

Key Events this Week

Watch out for the biggest events on the economic calendar this week. A full economic and corporate events calendar is available in the platform.

07.15 – 08.30 UTC 05-Oct Finalised Eurozone, UK Services PMIs
14.00 UTC 05-Oct US ISM Nonmanufacturing PMI
03.30 UTC 06-Oct RBA Interest Rate Decision
Pre-Market 06-Oct Paychex – Q1 2021
After-Market 06-Oct Levi’s – Q3 2020
06.00 UTC 07-Oct German Industrial Production
07-Oct Tesco – Interim Announcement 20/21
14.30 UTC 07-Oct US EIA Crude Oil Inventories
18.00 UTC 07-Oct FOMC Meeting Minutes
01.00 UTC 08-Oct US Vice President Nominee Debate
11.30 UTC 08-Oct ECB Monetary Policy Meeting Accounts
12.30 UTC 08-Oct US Weekly Jobless Claims
14.30 UTC 08-Oct US EIA Natural Gas Storage
06.00 UTC 09-Oct UK Monthly GDP, Production, Output

Week Ahead: NFP in focus as US lockdowns threaten recovery hopes

Earnings season is winding down, but the Q3 report from Walt Disney will be closely watched this week. On an economic front, the RBA and BoE both hold monetary policy meetings, and Friday’s US nonfarm payrolls report threatens to keep markets volatile right up until the weekend.

PMIs on tap from Markit, Caixin, ISM

A slew of PMIs this week will provide more information on the state of the global economy. Finalised manufacturing and services PMIs are due for the Eurozone, UK, and US. The closely-watched China Caixin manufacturing PMI arrives first on Monday, with the services PMI following during Wednesday’s Asian session.

Also in the docket this week are the US ISM manufacturing and nonmanufacturing indices. The nonmanufacturing index is expected to pull back slightly after leaping nearly 12 points in the June reading, while still remaining firmly in growth territory.

Reserve Bank of Australia meeting – recent deflation to prompt response?

The Reserve Bank of Australia meets against a backdrop of surging coronavirus cases both globally and domestically.

Fresh lockdowns threaten the economic reopening and recent CPI data revealed that prices fell on an annual basis for the first time since 1997 in Q2, with the quarter also posting its biggest drop in the consumer price index on record.

Markets are likely looking for policymakers to do more to stimulate inflation. With interest rates already effectively zero, and no appetite to go lower, the focus will be on whether the RBA considers other forms of stimulus necessary now or in the near-term.

Walt Disney earnings

Investors will be watching three key factors in Disney’s upcoming Q3 earnings report, which is due after the close on August 4th. The biggest portion of the company’s revenue comes from its theme parks – some of these have reopened, but others have remained closed even past their original reopen dates thanks to surging case numbers.

Delays not only to the release, but also the production, of blockbuster movies will impact both the bottom line and guidance.

Disney+ might prove a silver lining – lockdown has seen a surge in subscriber numbers for rival Netflix, and investors will be watching the see if Disney has enjoyed a similar boom.

Bank of England rate decision, Inflation Report

The Bank of England’s Monetary Policy Committee will announce its latest monetary policy decision on Thursday.

Chief economist Andy Haldane recently told the Treasury Select Committee that he believes the UK economy has recovered “roughly half” of the huge slump seen in March and April, but warned that unemployment could hit highs not seen since the mid-80s.

Haldane listed several policies the Bank of England could employ if policymakers deem it necessary – any talk of negative interest rates would be the most headline-grabbing, but the MPC could also consider additional QE, credit easing, or forward guidance.

No changes to interest rates or QE is currently expected. The BoE will also publish the latest Inflation Report on Thursday.

Nonfarm payrolls – fresh lockdown measures to slow labour market recovery?

July’s US nonfarm payrolls report is due for release on Friday. The past two readings have shown a huge rebound after the -20 million collapse seen in April, with 2.7 million jobs added in May and 4.8 million in June. Economists expect to see another 2.2 million jobs were created in July.

There is still a long way to go until the US is back to pre-Covid levels of employment, and surging case numbers and fresh restrictions on businesses in many states could weigh on future jobs gains.

Highlights on XRay this Week 

Read the full schedule of financial market analysis and training.

07.15 UTC Daily European Morning Call
12.00 UTC 03-Aug Master the Markets with Andrew Barnett
From 15.30 UTC 04-Aug Weekly Gold, Silver, and Oil Forecasts
17.00 UTC 06-Aug Election2020 Weekly
12.00 UTC 07-Aug Marketsx Platform Walkthrough

Top Earnings Reports this Week

Here are some of the biggest earnings reports scheduled for this week:

05.30 UTC 04-Aug Bayer – Q2
04-Aug Sony – Q1
Pre-Market (UK) 04-Aug BP – Q2
After-Market 04-Aug Walt Disney – Q3
05.00 UTC 05-Aug Allianz – Q2
Pre-Market 05-Aug Regeneron
06.00 UTC 06-Aug Glencore – Q2
06-Aug Adidas – Q2
Pre-Market 06-Aug Siemens – Q3
06-Aug Uber – Q2

Key Events this Week

Watch out for the biggest events on the economic calendar this week:

01.45 UTC 03-Aug China Caixin Manufacturing PMI
07.15 UTC – 08.00 UTC 03-Aug Finalised Eurozone Manufacturing PMIs
08.30 UTC 03-Aug Finalised UK Manufacturing PMI
14.00 UTC 03-Aug US ISM Manufacturing PMI
04.30 UTC 04-Aug RBA Interest Rate Decision
22.45 UTC 04-Aug New Zealand Quarterly Employment Change / Jobless Rate
01.45 UTC 05-Aug China Caixin Services PMI
07.15 UTC – 08.00 UTC 05-Aug Finalised Eurozone Services PMIs
08.30 UTC 05-Aug Finalised UK Services PMI
14.00 UTC 05-Aug US ISM Nonmanufacturing PMI
14.30 UTC 05-Aug US EIA Crude Oil Inventories
11.00 UTC 06-Aug Bank of England Rate Decision, Monetary Policy Report
12.30 UTC 06-Aug US Weekly Jobless Claims
14.30 UTC 06-Aug US Natural Gas Storage
01.30 UTC 07-Aug RBA Monetary Policy Statement
06.00 UTC 07-Aug Germany Industrial Production / Trade Balance
12.30 UTC 07-Aug US Nonfarm Payrolls, Average Earnings, Jobless Rate

Week Ahead: Central banks on tap, NFP faces massive Covid hit

The economic calendar is packed full of top-tier releases this week, starting with manufacturing PMIs from China and the US. The RBA, BOC, and ECB all announce their latest policy decisions – and, in the case of the ECB, potentially ruffle a few more feathers in Germany. And, of course, we have the latest US nonfarm payrolls report to round off the week. 

China Caixin Manufacturing PMI – does the headline reflect the story?

China’s Caixin Manufacturing PMI slipped back into negative territory in April, missing market expectations of another print just above the 50 mark. A look at the sub-indexes painted a rather more messy picture than the headline number. 

New orders slumped for a third month and export orders dropped the most since December 2008. Order backlogs rose, while supplier delivery times improved and input costs fell on the collapsing oil prices, pushing the headline number higher. 

May’s reading is expected to hold just below 50 – but once again, the vastly different performance of those sub-indexes is likely where the true story will lie. It looks like Chinese industry has a lot further to go yet before growth returns properly. 

US ISM PMIs to stabilise

US manufacturing collapsed last month, with the index diving to 41.5 from 49.1 in March. Despite being the worst drop since April 2009, the reading was still better than market expectations of 36.9, although this was because of a surge in supplier delivery times. While usually a sign of a strong economy, deliveries were held up by supply shortages due to the Covid-19 pandemic. 

Things are expected to have stabilised in May, but getting back into growth territory (a reading above 50) could take a while; Oxford Economics doesn’t expect output losses to be recouped until 2021. 

The decline in non-manufacturing is expected to moderate slightly, with the index forecast to tick higher to 44.2 from 41.8. 

RBA, BOC, ECB interest rate decisions

The Reserve Bank of Australia is the first of three central banks to hold monetary policy meetings this week. Rates are already at a record low 0.25%, which is effectively zero, and the board has no appetite for taking them negative. 

ASX 30 Day Interbank Cash Rate Futures for June show markets are pricing in nearly 50-50 odds of a cut to zero, but many analysts think the RBA has done all it will do, and that rates will remain unchanged for two or three years. 

This week’s Bank of Canada rate announcement coincides with the start of Tiff Macklem’s tenure as governor. Senior deputy governor Carolyn Wilkins said recently that the BOC could look at adjusting its asset purchasing programme with the aim of stimulating the economy, rather than just enhancing the liquidity of financial markets, although policymakers may not be ready for such a move just yet.  

The European Central Bank is expected to leave rates unchanged, although the pandemic emergency purchase programme (PEPP) is likely to be extended and expanded. Christine Lagarde will face questions about Germany’s ruling on the ECB’s quantitative easing programme during the post-meeting presser. Read our full preview on the ECB monetary policy meeting here.

Last week Isabel Schnabel, a member of the ECB board who joined in January, shrugged off the ruling, suggesting it was for the Bundesbank and Germany’s government to resolve the issue. 

“I’m sure there is going to be communication between the Bundesbank and the German parliament and the German government, and one will have to find a solution,” Schnabel told the Financial Times last week. “If the ECB can be constructive in supporting that process, we will of course do so.” 

Australia quarterly GDP: the end of three decades of growth

First-quarter economic data is expected to show that the Australian economy contracted -0.8% on the quarter and -1.2% on the year. Australia is expected to fall into recession for the first time in three decades this year, with GDP dropping -10%. 

Last week, Prime Minister Scott Morrison outlined the government’s plans to help revive the economy, but he also warned that any recovery was likely to take between three and five years. 

Eurozone retail sales and Germany factory orders

The collapse in Eurozone retail sales is expected to have worsened at the start of Q2. Analysts are forecasting a month-on-month decline of -18.6% during April, after a -11.2% drop in March. Year-on-year sales are predicted to have cratered -24%. 

Germany’s April factory orders data will likely reveal some similarly painful numbers. Orders fell -15.6% in March and economists are expecting a -21.3% drop when the April data is published on Friday.  

US NFP – jobless rate to hit 20%?

After tanking -20.5 million last month in the worst drop on record, this week’s US nonfarm payrolls report is expected to show another decline in employment of up to -5 million. The jobless rate, which leapt to nearly 15% in April, is likely to print just shy of 20%. Economists expect unemployment will peak around 25%, although Goldman Sachs analysts have suggested it could climb higher. 

Join Markets.com chief market analyst Neil Wilson for live analysis of the market reaction to the US nonfarm payrolls report with our free webinar.

Heads-Up on Earnings 

The following companies are set to publish their quarterly earnings reports this week:

After-Market 02-Jun Zoom Video Communications – Q1 2021
Pre-Market 03-Jun Campbell Soup – Q3 2020
After-Market 04-Jun Broadcom – Q2 2020
After-Market 04-Jun Slack – Q1 2021
05-Jun Toshiba Corp – Q4 2019

Highlights on XRay this Week 

Read the full schedule of financial market analysis and training.

07.15 UTC Daily European Morning Call
From 15.30 UTC 02-June Gold, Silver, and Oil Weekly Forecasts
12.50 UTC 03-June Asset of the Day: Indices Insights
19.30 UTC 04-June Daily FX Recap and Looking Forward
10.00 UTC 05-June Supply & Demand – Approach to Trading

Key Economic Events

Watch out for the biggest events on the economic calendar this week:

01.45 UTC 01-Jun China Caixin Manufacturing PMI
14.00 UTC 01-Jun US ISM Manufacturing PMI
01.30 UTC 02-Jun Australia Company Operating Profits (Q/Q)
05.30 UTC 02-Jun RBA Interest Rate Decision
07.15 – 08.00 UTC 02-Jun Eurozone Member State Finalised Manufacturing PMIs
08.30 UTC 02-Jun UK Finalised Manufacturing PMI
01.30 UTC 03-Jun Australia GDP (Q/Q)
01.45 UTC 03-Jun China Caixin Services PMI
07.15 – 08.00 UTC 03-Jun Eurozone Member State Finalised Services PMIs
08.30 UTC 03-Jun UK Finalised Services PMI
14.00 UTC 03-Jun Bank of Canada Interest Rate Decision
14.00 UTC 03-Jun US ISM Non-Manufacturing PMI
14.30 UTC 03-Jun US EIA Crude Oil Inventories
01.30 UTC 04-Jun Australia Retail Sales / Trade Balance
09.00 UTC 04-Jun Eurozone Retail Sales
11.45 UTC 04-Jun ECB Interest Rate Decision
12.30 UTC 04-Jun ECB Press Conference
14.30 UTC 04-Jun US EIA Natural Gas Storage
06.00 UTC 05-Jun Germany Factory Orders
12.30 UTC 05-Jun US Nonfarm Payrolls

Euro wobbles ahead of German court ruling, risk appetite improves

Attention this morning was on the German constitutional court and its ruling on the ECB’s long-standing bond buying programme. This could limit the amount of bonds the Bundesbank can buy, potentially creating a rift with the ECB and other member states. The real concern is whether it could affect the €750bn Pandemic Emergency Purchase Programme (PEPP), which has much looser rules than other QE programmes.

 

It’s high stakes – if the court blocks the Bundesbank from participating in QE it would be curtains for the ECB and creates significant Eurozone breakup risks. The good news is that the judges probably realise this. High stakes but the risk of serious ructions appears low.  The European Court of Justice has already ruled in favour of the ECB’s bond buying, so it’s hoped the German court will not rock the boat at this critical moment.

 

EURUSD was lower, breaking down at the 1.09 support having failed to sustain the move above 1.10 last week, which could open move back to around 1.0810. The euro seems to be displaying some degree of stress this morning ahead of the German court ruling. 

 

European markets rose after Asian equities made some gains. Markets in Japan, South Korea and China were shut for a holiday, but Hong Kong and Sydney rose. Wall Street closed a little higher after bulls pushed the S&P 500 into positive territory only in the final hour of trading yesterday. There is a little more risk appetite as oil prices climb. 

 

The Reserve Bank of Australia left rates on hold at the record low 0.25% and seems to be well dug in here. The RBA won’t go negative and won’t hike until the Covid-19 crisis is well in the rear view mirror. This is a pattern being repeated by most major central banks. 

 

Oil continues to make steady gains with front month WTI to $22 on hopes lockdowns are being lifted. The idea that we will be moving around anything like as much as before is fanciful, at least in the near term. New Zealand is going to be shut to foreigners – except perhaps their pan-Tasman pals – for a long time to come, the prime minister says. Ryanair has reported passenger numbers in April fell 99.6% and sees minimal traffic in May and June. Carnival is getting cruises going again – tentatively – in August. New car registrations in the UK collapsed in April, falling 97% to just 4,000 vehicles.

API data later today could show a very small build in inventories, but as always we prefer to look at tomorrow’s EIA figures. A small build would give more hope to oil bulls that the glut is not as bad as feared, however I would caution that we are simply seeing inventories naturally build more slowly as we approach tank tops.

Chart: EURUSD wobbles

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