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Week Ahead: RBA and BoE, Disney Earnings, US NFP
Expect policy decisions from the RBA and BoE, a host more earnings reports, the US nonmanufacturing PMI, and of course the highly anticipated/dreaded April nonfarm payrolls report. Keep track of the biggest market-moving events with the Events Calendar in the Marketsx trading platform.
Reserve Bank of Australia interest rate decision
Data is tentatively showing that lockdown measures in Australia might have succeeded in flattening the curve of infections, and several states have already started relaxing social distancing rules.
The Reserve Bank of Australia has previously stated that it believes the economy will begin to rebound once the outbreak was contained, therefore it seems unlikely we will be getting any further stimulus announcements as a result of this week’s meeting. It’s too early to expect the board to start tightening again, but we could see some comments regarding plans to begin tapering the quantitative easing programme.
Regeneron Pharmaceuticals is one of the leading companies in the race to find treatments and a vaccine for COVID-19. The stock is up 40% since the start of the year, and is a constituent of our Corona Blend. Analysts are expecting EPS of $5.99 per share – growth of 34.6% on the year. Revenue is forecast up 16% from the same period a year ago at $1.99 billion.
US ISM Nonmanufacturing PMI
Last month the US ISM Nonmanufacturing PMI fared much better than expected, clocking in at 52.5 versus the consensus forecast of 43.0. Companies reported a jump in supplier deliveries, with the sub–index leaping to 62.1 versus 52.4 the previous month.
Digging further into numbers, however, it’s clear to see that this helped mask wider weakness. The employment index recorded the largest drop since 2008, tumbling from 55.6 to 47.0, and the business activity index dropped almost 10 points to 48.0. New export orders and imports also collapsed.
April’s report is likely to see the headline number more accurately reflecting the weakness in the sub-indices – some forecasts suggest a drop to as low as 32.0.
Walt Disney earnings
Disney’s latest earnings report will be more of a preview than the main event. The company’s second-quarter period ends just a couple of weeks after social distancing measures and business closures were enforced. Like so much of the current data and reports, the rule is to expect bad news now, and brace for even worse to come.
Business closures and social distancing will have hit Disney from all directions, forcing closures of its parks, curtailing or delaying theatrical releases of its latest films, and hurting demand in its retail stores.
The effect has clearly been significant: the company has already announced that it would slash executive salaries.
The one positive in the report is likely to be the strong performance of the company’s streaming service, Disney+. The service enjoyed a strong launch, and demand is likely to have been bolstered even further thanks to global lockdowns.
Guidance for the next quarter won’t be able to answer all investor’s questions – such as whether parks will be able to reopen in time for the busy summer season – but will give details on how the company plans to endure these punishing conditions until the economy gets back to something that vaguely resembles normality.
PayPal stock has been one of the most resilient of those belonging to the payment processing industry. The company is likely to benefit from a surge in online shopping and demand for online services.
However, PayPal has also announced various measures to support its smaller partners, such as deferring business loan payments and waving certain fees for small business customers who are most affected by the impact of COVID-19. This will hit the company’s bottom line and revenue growth is expected to be negative for the quarter.
Bank of England interest rate decision
The Bank of England faces the same situation as the Fed and ECB – interest rates are already as low as policymakers are willing to go (for the time being, at least), so it’s unlikely we will see any change to the base rate on Thursday. We could see an increase in the size of the asset purchasing programme, however, or alterations to its short-term repo operations.
The BoE also publishes its latest Inflation Report, which will detail the expected hit to the UK economy from the coronavirus pandemic. The latest decision and report will be announced at 06.00 UTC on Thursday May 7th, instead of the usual time of 11.00 UTC.
Last month, the nonfarm payrolls report showed a drop of 701,000 jobs in March. The unemployment rate leapt past expectations to 4.4%. The market reaction was muted, however, because everyone from economists to traders knew that there was far worse to come.
Since the 21st of March, over 25 million Americans have filed jobless claims. March’s NFP may have been the worst report since 2009, but the numbers will seem trifling compared to those reported for April.
We’ve seen recently that markets are able to shrug off backward-looking data even if the readings are dire. It was the fear of numbers like these, after all, that saw stock markets posting record declines in Q1.
It is also worth noting that, since late March, the number of Americans filing for new jobless claims has fallen each week, suggesting the worst of the job losses may be behind us.
But there is a risk that the numbers will be so appalling that markets will have to rethink their already bearish forecasts.
Heads-Up on Earnings
The following companies are set to publish their quarterly earnings reports this week:
|Pre-Market||05-May||Thompson Reuters – Q1 2020|
|Pre-Market||05-May||Regeneron Pharmaceuticals – Q1 2020|
|12.00 UTC||05-May||BNP Paribas – Q1 2020|
|By 13.00 UTC||05-May||Fiat Chrysler – Q1 2020|
|After-Market||05-May||Walt Disney – Q2 2020|
|After-Market||05-May||Activision Blizzard – Q1 2020|
|After-Market||05-May||Prudential Financial – Q1 2020|
|After-Market||05-May||Occidental Petroleum – Q1 2020|
|Pre-Market (Europe)||06-May||BMW – Q1 2020|
|06-May||Credit Agricole – Q1 2020|
|06-May||Shopify – Q1 2020|
|Pre-Market||06-May||General Motors – Q1 2020|
|After-Market||06-May||PayPal – Q1 2020|
|After-Market||06-May||T-Mobile US – Q1 2020|
|After-Market||06-May||Lyft – Q1 2020|
|07-May||BT Group – Q4 2020|
|Pre-Market||07-May||Wheaton Precious Metals – Q1 2020|
|08-May||Siemens – Q2 2020|
Highlights on XRay this Week
|07.15 UTC||Daily||European Morning Call|
|09.00 UTC||Daily||Earnings Season Daily Special|
|10.00 UTC||May 6th||Live Market Analysis with Neil Wilson|
|12.20 UTC||May 8th||Platform Walkthrough|
|12.30 UTC||May 8th||US Nonfarm Payrolls Live|
Key Economic Events
Watch out for the biggest events on the economic calendar this week:
|08.15 – 09.00 UTC||04-May||Finalised Eurozone Member / Bloc Manufacturing PMIs|
|04.30 UTC||05-May||Reserve Bank of Australia Interest Rate Decision|
|14.00 UTC||05-May||US ISM Nonmanufacturing PMI|
|08.15 – 09.00 UTC||06-May||Finalised Eurozone Member / Bloc Services PMIs|
|14.30 UTC||06-May||US EIA crude Oil Inventories|
|01.30 UTC||07-May||Australia Trade Balance|
|01.45 UTC||07-May||Caixin Services PMI|
|10.00 UTC||07-May||EU Economic Forecasts|
|06.00 UTC||07-May||Bank of England Interest Rate Decision|
|12.30 UTC||07-May||US Jobless Claims|
|01.30 UTC||08-May||Reserve Bank of Australia Monetary Policy Statement|
|12.30 UTC||08-May||US Nonfarm Payrolls / Unemployment Rate|
RBA expected to hold policy, but for how long?
Up until a couple of weeks ago markets were pricing in strong odds that the Reserve Bank of Australia would cut the Official Cash Rate to 0.50% from 0.75%.
All that changed after December’s labour market data was released. Unemployment dropped for a second consecutive month, hitting the lowest levels since April 2019 at 5.1%. Unemployment decreased by 13,000, largely thanks to a 29,000 increase in the number of workers employed part-time.
While still leaving the jobless rate significantly above 4.5% – a level be RBA believes will prompt an acceleration in wage growth – the unexpectedly strong report saw markets slashing odds of further easing in February.
The Australian dollar snapped a 5-day downtrend against the US dollar, spiking to test 0.6880, but the selloff quickly resumed as the focus returned to the viral outbreak in China.
Bets on easing in February drop after jobs data
According to ASX 30 day interbank cash rate futures contracts for February 2020, the probability of a cut has fallen from 56% as of January 16th to 30% by January 28th.
Westpac also noted that the strong data lowered the odds of further accommodation, with chief economist Bill Evans stating:
“Prior to the release of the surprisingly strong December Employment Report we had expected the cuts to be timed for February and June.”
“Given this strength and the significance of the labour market in the mind of the RBA, we have consequently decided to push out our forecast for two further cash rate cuts from February and June to April and August 2020.”
However, Westpac believes that the recent strength in the labour market won’t last, supporting the call for further easing. Evans explained:
“The importance of the April date is that the Board will have seen another print of the national accounts for the December quarter which is likely to highlight the soft growth environment while we expect that the surprise improvement in the unemployment rate will be unravelling.”
Consensus: cuts are still coming
The general consensus is that the RBA will have to ease further as the year progresses. While some parts of the economy are stabilising, particularly the property market (which has of course been helped by 75 basis points worth of easing during 2019), others are flagging.
Construction and consumer confidence are weak, and expectations for retail sales over the Christmas period are low. Construction output has declined for five straight quarters, while consumer confidence has erased most of the rebound recorded after hitting the lowest levels since mid-2015 in October.
There are also questions over the impact of the bushfires upon monetary policy. It is believed that, despite the economic damage estimated to be in the region of $100 billion, the bushfires will have only a short-term impact and therefore may not have any bearing on monetary policy. However, if it serves to further knock consumer confidence, it could be a contributing factor in any decision to ease policy.
The Chinese coronavirus outbreak is another large unknown; Australia trades heavily with China, so talk of factory shutdowns and a reduction in consumption could hurt the Australian economy.
What will the guidance say?
It can take 12 to 18 months for the impact of monetary policy adjustments to be fully known, so the RBA is likely to claim next month that it needs more time to assess the effects of 2019’s trifecta of cuts.
But how much time? Some analysts, like Evans at Westpac, believe the RBA will tee up a cut for April, while others think we may have to wait until the second half of the year to see further easing.