Week Ahead: Bumper week with FOMC, ECB, FAANGS & GDP

Week Ahead

Welcome to your guide to the week ahead in the markets. Remember you can now find all the key events affecting the markets in our new Events Calendar in the platform.

European Central Bank rate decision

Last week ECB president Christine Lagarde allegedly told EU leaders during a private video summit that the bloc could be facing a drop in GDP of up to 15%, and that their efforts to contain the outbreak have been both too little and too late. Monetary policy can only go so far, but the ECB does still have room to manoeuvre. Expansion of QE will likely be the first port of call if policymakers decide more needs to be done, but minutes from the March 18th meeting show that cutting rates was floated, too.

FOMC decision – has the Fed got any ammunition left?

What’s left for the Federal Reserve to do? Rates have been slashed to zero, and that’s where futures markets see them staying well into 2021 at least. And it’s hard to announce more QE when you’ve already committed to unlimited asset purchases. The key question is what the FOMC has left in reserve in case its vast stimulus measures aren’t enough. Will policymakers set negative rates? Will they buy corporate stocks? Will they explicitly target yields on government bonds? Markets will be looking for reassurance that policymakers still have plenty of ammunition left. 

Bumper week of earnings with Apple, Alphabet, Facebook reporting 

Netflix has already reported earnings, but this week sees the rest of the FAANG group offering up their quarterly figures. Tesla and Microsoft are also amongst the heavy hitters providing updates this week. 

US, Eurozone GDP 

We’ve seen piecemeal evidence of the impact COVID-19 has had on the US and Eurozone economies thanks to industrial data, PMIs, and business sentiment figures. But now it’s time to get the full picture, as the US and Eurozone will both publish estimates of Q1 growth. It was initially believed that moderate growth in January and February would have softened the blow from social distancing and widespread lockdowns that went into effect in March. Now the consensus is that the recession expected in Q2 arrived much earlier. Estimates vary wildly, but no matter how dire the results, the figures for Q2 are likely to be way worse.

Heads-Up on Earnings

After-Market   28-Apr   Alphabet – Q1 2020  
After-Market   29-Apr   Microsoft – Q3 2020  
After-Market   29-Apr   Facebook – Q1 2020  
After-Market   29-Apr   Tesla – Q1 2020  
After-Market   30-Apr   Apple – Q2 2020  
After-Market   30-Apr   Amazon – Q1 2020 

Key Events

03.00 UTC   28-Apr   BOJ Rate Decision & Outlook Report  
07.00 UTC  28-Apr  Spanish Unemployment Rate Q1 
14.00 UTC   28-Apr   US CB Consumer Confidence  
01.30 UTC   29-Apr   Australia Quarterly CPI  
12.00 UTC   29-Apr   Germany Preliminary CPI  
12.30 UTC   29-Apr   US Advance GDP QoQ  
14.30 UTC   29-Apr   US EIA Crude Oil Inventories  
18.00 UTC   29-Apr   FOMC Rate Decision  
09.00 UTC   30-Apr   Eurozone Flash GDP  
11.45 UTC   30-Apr   ECB Rate Decision and Statement  
12.30 UTC   30-Apr   US Initial Jobless Claims  
14.30 UTC   30-Apr   US EIA Natural Gas Storage 

Cable drops as UK economy contracts

Forex

The UK economy contracted by 0.2% in the second quarter of the year, its worst performance since 2012.

Figures from the Office for National Statistics showed the surprise contraction, which was significantly lower than the flatline economists expected. It also follows strong growth of 1.8% seen in Q1.

“PMI data had indicated we were set for a contraction, albeit not so severe,” explained Neil Wilson, Chief Markets Analyst at MARKETS.COM.

Much of the growth in the first quarter was attributed to panic buying and stockpiling before the original March Brexit deadline. Indeed, Head of GDP Rob Kent-Smith, also blamed the 2.3% drop in Manufacturing output in the Brexit delay. The initial strong start to the year included production brought forward ahead of the UK’s departure from the EU.

The services sector was the only positive contributor to GDP growth in the quarter to June 2019 – but only just at 0.1%. This marks the weakest quarterly growth in this sector since Q2 2016.

Output from the production and construction sectors also contracted at -1.4% and -1.3% respectively.

Cable dropped sharply on the news, before recovering slightly. Having fallen below 1.2090, GBPUSD was last recovering above 1.21 but remains under pressure and a good 30 pips away from its highs of the day. Having breached yesterday’s lows we may see further testing of the downside.

“Clearly the unwind of stockpiling carried out in Q1 ahead of the aborted March 31st Brexit deadline has had an impact. Also, we can point to plenty of data around the world that shows we are in the middle of a broad global slowdown,” Wilson said.

“But you do have to admit that the pervasive uncertainty around Brexit is acting as a brake on the economy.”

Rolling three-month growth was negative 0.2% in the three months to June 2019, the first time since Q4 2012. This continued a steady decline in three-month growth since the start of the year.

So, was there anything positive in the latest GDP figures?

“Well, a lot of the decline seems to be down to the fall in car making as companies brought forward usual summer shutdowns of factories. The sharp fall in manufacturing output was led by a 5.2% decline transport equipment, which the ONS says largely reflected the partial closures of various car manufacturing plants. This may be partially recovered in the second half, while we may see further stockpiling ahead of the October 31st deadline that leads to a boost to Q3 numbers,” said Wilson.

However, he added, “but on the whole the figures make for worrying reading”.

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