CFD’s zijn complexe instrumenten en gaan gepaard met een hoog risico snel geld te verliezen vanwege de hefboom.79% van de particuliere investeerderaccounts verliezen geld als ze in CFD’s handelen bij deze aanbieder. U dient zorgvuldig te overwegen of u begrijpt hoe CFD’s werken en of u het zich kunt veroorloven om hoge risico’s te nemen op het verliezen van uw geld.
Update: Bank of England does just enough
The Bank of England left interest rates on hold at the record low 0.1% and increased the size of its asset purchase programme by £100bn to £745bn. Although largely in line with expectations, the expansion of the QE programme was a little less than some of us had anticipated, and indeed was really the bare minimum to satisfy the market. The BoE said it stands ready to increase QE if required – it may need to this autumn. The Old Lady could have been a little bit braver here and expanded the envelope more.
The Bank said it can conduct asset purchases at a slower pace, and that the programme would be completed by the end of the year, which seems to be taken as a positive for sterling as it implies a degree of hawkishness vs expectations. The lack of any chatter about negative rates also lifted the pound off its lows. But by send time cable was still close to the LOD again – there is a degree of calm about the BoE that is slightly at odds with its major peers like the Fed and ECB. The MPC appears a little too relaxed about all this.
Gilt yields moved higher and sterling rose off the lows. 2yr gilt yields spiked, turning positive at one stage having traded around -0.075% ahead of the announcement. GBPUSD dropped to the lows of the day ahead of the announcement but bounced off lows around 1.2475 to touch 1.2550 before paring gains a little. Cable remains stuck within the recent range between 1.2450 (the 50 per cent retracement of the bottom-to-top rally from the May low to the Jun high.) and the 200-day moving average just above 1.2690 that sparked the run lower since Tuesday.
On inflation, the MPC noted that while the decline in oil prices has been very important in the drop in headline CPI figures, a ‘sharp drop in domestic activity is also adding to downward pressure on inflation’. As a result, inflation is expected to fall further below the 2% target in the coming quarters, largely reflecting the weakness in domestic demand.
On the economy, the MPC thinks the downturn in the second quarter will be less severe than it estimated in May. However, we know that the initial rebound is the easy bit; getting back on the previous trend takes a lot longer.
In particular the Bank seems to be very aware of labour market stress, noting that ‘there is a risk of higher and more persistent unemployment’… and that the ‘economy, and especially the labour market, will therefore take some time to recover towards its previous path’. The Bank will need to cope with a significant increase in unemployment as the year progresses and will require to take more aggressive action.
Bank of England wheels for fresh charge
Central banks need to be marshalled like cavalry and stimulus like charges. If your stimulus doesn’t rout the enemy immediately, you can easily get bogged down in a melee in which you lose your advantage. The Federal Reserve keeps wheeling around and managing to rally troops for fresh charges – the corporate bond buying announcement this week was a fine example.
But increasingly the cavalry is wearying and the more this drags on the less impact the Fed’s repeated charges will have against the twin enemies of deflation and unemployment. Investors are clinging on to central bank stimulus like the Gordon Highlanders gripped the stirrups of the Scots Greys, as they rode down the French columns at Waterloo.
BoE preview: more QE on the way
The Bank of England will mount a fresh charge at the enemy formations today. Coordination is the name of the game: it needs to keep on top of the huge amount of issuance – borrowing – by the UK government. Wartime levels of debt means the BoE must expand the envelope to hoover it up or risk yields starting to rise and spreads widening.
So, the BoE is expected to increase QE by at least £100bn, but I think it may well opt for £200bn, or even more, given that even £100bn would only last it until the end of the summer and the real long-term economic problems are going to emerge later in the autumn. Interest rates will stay at 0.1% and expectations firmly anchored for the near future with forward guidance repeating that the Bank will do whatever it takes.
In order to achieve this, the government and central bank will need to coordinate throwing more money at the problem. Indications suggest furlough has been costly but only delayed a lot of the pain – a looming unemployment crisis will require further central bank support, which means more QE is likely. And don’t talk about negative interest rates – Andrew Bailey mentioned it once, but I think he got away with it. Once you go negative, it’s very hard to get back to normal.
Whilst fresh forecasts are not due until August, the Bank will likely set a more defensive tone in terms of its expectations for the recovery. As noted here on May 7th (BoE: for illustrative purposes only) the Bank’s assumptions on economic recovery seem rather optimistic.
Sterling was steady ahead of the decision. GBPUSD held around the middle of its trading range, sitting on the 38.2% retracement of the bottom-to-top rally from the May low to the Jun high. Monday’s test of the 1.2450 (50% level) remains the support whilst the upside seems well guarded by the 200-day moving average just above 1.2690 that sparked the run lower since Tuesday.
Stocks on the back foot on fears of second Covid-19 wave
Wall Street stocks fell yesterday, except for tech, whilst European markets are on the back foot this morning as investors parse new cases in the US and China. The bulls lost energy as new hospitalisations in Texas due to Covid-19 rose 11% in the space of 24hrs. Several other US states are seeing rising cases that are a worry, albeit the kind of mass lockdown seen earlier this year appears an unlikely course of action. The economic damage is too high, and we are generally better equipped to handle it.
Worries about China are also important – markets had largely not bet on a second lockdown in the world’s second largest economy.
Overall, the market swings now suggest investors are reacting to various headlines about recovery, stimulus and new cases without much clear direction as to what it all means as a bigger picture. The major indices are right in the middle of recent trading ranges, sitting around the 50-60% retracements of the move from the multi-month highs at the start of last week to the swing lows this week.
Elsewhere, the US pulled out of talks with Europe over a global digital services tax, which raises the risk of individual countries taking their own steps, in turn sparking a fresh wave of US-EU tensions. An escalation of dormant trade wars is not out of the question if EU nations and the UK decide to tax US tech giants aggressively.
This comes of course after the EU launched an anti-trust probe into Amazon. In Europe, Germany passed additional fiscal stimulus to combat the pandemic costs. This morning Angela Merkel called on the EU to agree to the Covid fund before the summer break.
Crude steady on EIA inventories data
Crude prices were steady as they hold within the consolidation pattern printed since the start of June. WTI for August was holding around the $38 marker after the EIA inventories rose 1.2m barrels, vs expectations for a draw.
This matched the API data (+3.9m) and suggests there are more supply-side pressures at present, but OPEC data indicated demand not falling as much as previously expected in the second half of the year. Meanwhile it seems Iraq is working its way towards complying with OPEC+ cuts.
BlondeMoney Bank of England rate decision preview
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Equities rebound on Covid breakthrough as cases mount
Stocks are in recovery mode as investors are energised by the prospect of further stimulus, a rebound in US retail sales and on hopes of a ‘major breakthrough’ treatment for serious cases of coronavirus. The Fed’s decision to buy individual corporate bonds and hopes the White House will swing a $1tn infrastructure package continue to help lift the boats.
US retail sales jumped 17.7% in May from the previous month, but still remain down sharply on a year-over-year basis – remember sharp rebounds are to be expected after the easing of lockdown, it doesn’t mean things are peachy.
Scientists in the UK found a cheap and widely available steroid, dexamethasone, reduces mortality rates among hospitalisations for covid-19. Meanwhile AstraZeneca says it will have a vaccine ready by October that will protect people for one year.
Markets overlook second wave fears and India-China tensions
Meanwhile investors are shrugging off fears of a ‘second wave’ as we see rising numbers of cases in the US and an outbreak in Beijing that has prompted the Chinese authorities to introduce new travel restrictions. Markets also seem unconcerned by a confrontation between India and China that left several soldiers dead on both sides.
Whilst investors will need to monitor the situation closely, I would not expect any serious escalation to impact financial markets. China’s foreign ministry said this morning the overall situation is stable and controllable.
European equities surged three per cent yesterday, while Wall Street rose 2%. This morning stocks in Europe extended gains with the FTSE 100 advancing back to 6,300 and the DAX above 12,400. The S&P 500 yesterday closed a point above the 3,123 level that we talked about, which was the Thursday opening daily high. Futures indicate a higher open as stocks in Europe open up firmly.
UK inflation slows sharply, eyes on Bank of England tomorrow
Data this morning showed UK inflation at a miserly 0.5%, which was in line with expectations, but again signals the very deflationary impact of the pandemic right now. But as previously discussed, there may be a large dose of inflation coming round the bend.
The Bank of England will tomorrow almost certainly announce more QE, likely increasing purchases by at least £100bn. Numbers yesterday pointed to a looming unemployment crisis in the UK as businesses slash jobs over the coming months.
FX majors hold ranges, oil rises on improved IEA demand outlook
In FX, the majors are holding their ranges. GBPUSD moved back under 1.26 having broken down at the 200-day moving average at 1.2690 yesterday, looking potentially to test the 100-day line around 1.2530 before a retest of Monday’s lows around 1.2450 as a near-term support. EURUSD pulled back under 1.13 having again bounced off the 23.6% Fib level around 1.1230 yesterday.
Crude oil rose on the turnaround in risk sentiment and gained further support after the International Energy Agency raised its oil demand outlook by 0.5m bpd to 91.7 million bpd. Near-term there are still pressures though – API inventories showed a rise of almost 4m barrels.
EIA figures today may show a slight build – but as noted last week the consensus estimates for these prints have been quite wide of the market over the last couple of months. Whilst risk is bid right now as equities climb, a rise in cases in the US and China may dampen hopes for an immediate rebound in oil demand.
Volgende week: Vergaderingen BoE, BoJ; hoop vervliegt op snel herstel na COVID-19
Vorige week boorde het Federal Open Market Committee effectief de hoop in de grond dat de wereldeconomie snel zou kunnen herstellen van de COVID-19-pandemie. De meeste cijfers zullen de slechte outlook deze week naar verwachting bevestigen. Hoopvol nieuws kan worden overschaduwd door de groeiende angst dat we geconfronteerd zullen worden met een tweede golf van besmettingen.
De Bank of England en Bank of Japan houden deze week hun beleidsvergaderingen. Verwacht meer signalen dat de stimulerende maatregelen nog lang zullen blijven.
Begin goed aan de nieuwe week: lees onze volledige analyse van belangrijke agendapunten en de cijfers waar de markten op wachten.
Chinese industriële productie versnelt, daling detailhandelsverkoop neemt af
China is nog steeds de maatstaaf voor het wereldwijde herstel. De markten houden cijfers nauwlettend in de gaten om te zien hoe snel economieën kunnen herstellen van een lockdown. De industriële productie is na drie maanden van krimp in april weer gegroeid op jaarbasis. De voorspellingen voor mei duiden op een versnelling van de groei tot 5%.
Verwacht wordt dat de detailhandelsverkopen zullen blijven krimpen, hoewel het tempo van de daling sterk is afgenomen sinds de dalingen van -20,5% die in januari en februari werden genoteerd. In april was er sprake van een daling van -7,5%. Naar verwachting neemt de daling af tot -2% in mei.
Bank of Japan stelt tijdlijn vast voor lage rente
Vorige week sprak het Amerikaanse FOMC de verwachting uit dat de rentetarieven tot 2022 in de buurt van nul zullen blijven. De Bank of Japan kan soortgelijke stappen zetten en de sterke yen, een toevluchtsoord in onzekere tijden veroorzaakt door de sombere economische voorspellingen van het FOMC, proberen te beteugelen. De BoJ kan daarom besluiten om een eigen tijdlijn vast te stellen om de rentetarieven op de huidige of lagere niveaus te houden.
Afnemende hoop op V-vormig herstel trekt sentiment omlaag
Het economische sentiment in Duitsland en in de eurozone is sinds april gestegen, maar volgens de prognoses zou het vertrouwen van de investeerders weer kunnen afnemen. Een beoordeling van de huidige omstandigheden is sowieso moeilijk, maar in het algemeen werden de cijfers opgetrokken door de hoop op snel economisch herstel – iets wat steeds onwaarschijnlijker wordt.
Inflatie VK, Canada: prijsgroei blijft onder druk staan
Als gevolg van de lockdowns en instortende olieprijzen zijn de consumentenprijzen zwaar onder druk komen te staan. De inflatiecijfers van het Verenigd Koninkrijk en Canada zullen deze week naar verwachting verdere zwakte laten zien. De kerninflatie in het VK bedroeg in april slechts 0,1%. Prognoses voor de cijfers uit Canada duiden op een daling van -0,2% deze maand, na de -0,7% die in mei werd genoteerd.
Detailhandelsverkoop neemt verder af in VK, Canada: ziet het er beter uit in de VS?
Verwacht wordt dat de detailhandelscijfers voor het Verenigd Koninkrijk en Canada deze week opnieuw enorme dalingen zullen noteren. Consumenten worden nog altijd gehinderd door lockdown-maatregelen en het sluiten van bedrijven. De bedrijven die weer open zijn gegaan, zien dat de verkopen negatief worden beïnvloed door de strenge social distancing-maatregelen.
In het Verenigd Koninkrijk, Canada en de Verenigde Staten zijn de detailhandelsverkopen in april gedaald met de grootste cijfers ooit. Voor het VK en Canada wordt verwacht dat de situatie in mei nog verder is verslechterd.
In het geval van de VS wijzen recente cijfers van Mastercard er echter op dat de daling van de detailhandelsverkopen in mei is afgezwakt. Verkopen daalden met -16,4% in april, maar Mastercard zegt dat er vorige maand een veel kleinere daling van de transactievolumes te zien was.
Groeicijfers Nieuw-Zeeland: stilte voor de storm
De Nieuw-Zeelandse premier Jacinda Ardern sprak vorige week uit dat COVID-19 in het land is uitgeroeid en dat het leven weer enigszins normaal kan worden.
De economische klappen als gevolg van de maatregelen van de regering in de strijd tegen het virus zullen echter ernstig zijn. De OESO voorspelt voor dit jaar een daling van het BBP met -8,9%, waarbij de economie pas eind 2021 weer het niveau van voor de pandemie bereikt.
De BBP-cijfers van deze week hebben betrekking op het eerste kwartaal, waarbij een daling van slechts -0,4% wordt verwacht. Maar zoals we weten, is het tweede kwartaal het kwartaal dat er echt toe doet.
Werkloosheid Australië blijft toenemen
De cijfers van deze week laten naar verwachting zien dat er vorige maand nog eens 200.000 banen verloren zijn gegaan, bovenop de bijna 600.000 in april. De werkloosheid is in april met een procentpunt gestegen tot 6,2%, al bleef dit ruim onder de marktverwachtingen van een stijging tot 8,3%.
Er wordt voorspeld dat het werkloosheidscijfer tot 6,9% zal stijgen, hoewel het werkelijke cijfer waarschijnlijk veel hoger ligt gezien het aantal Australiërs dat momenteel afhankelijk is van de overheid voor het uitbetalen van hun salaris.
Bank of England breidt QE uit
De Bank of England zal naar verwachting deze week haar kwantitatieve quantitative easing-programma uitbreiden. Schattingen lopen uiteen van 70 miljard pond tot 200 miljard pond bovenop eerder aangekondigde gelden.
Negatieve rentetarieven zullen zeker worden genoemd, maar de beleidsmakers benaderen de kwestie voorzichtig. Hoewel gouverneur Andrew Bailey onlangs zijn absolute verzet tegen deze maatregel heeft opgegeven, wilde hij niet verder gaan dan te zeggen dat het “dwaas” zou zijn om een negatieve rente uit te sluiten. Hoofdeconoom Andy Haldane van de BoE zei eind mei dat hoewel de MPC het idee van negatieve tarieven onderzocht, dit nog zeer pril was en een besluit over de kwestie niet op korte termijn zou vallen.
Kroger zal naar verwachting een winstgroei van 23,6% op jaarbasis rapporteren bij publicatie van de kwartaalresultaten op 18 juni. De winst per aandeel bedraagt naar verwachting $0,89, terwijl de netto verkoop naar schatting met 7,7% op jaarbasis zal zijn gestegen tot $40,12 miljard.
Het aandeel Kroger heeft de COVID-19-pandemie goed doorstaan en is na de uitverkoop in maart snel weer opgeveerd. Momenteel staat het aandeel ongeveer 12% in de plus sinds het begin van het jaar. Onze Analyst Recommendations-tool geeft aan dat de consensus voor het aandeel “Kopen” is. Hedgefondsen kochten afgelopen kwartaal 20 miljoen aandelen van het bedrijf.
Hoogtepunten op XRay deze week
Bekijk de volledige agenda van financiële marktanalyses en trainingen.
|07.15 UTC||Daily||European Morning Call|
|09.30 UTC||17-June||FXTrademark Course – Moving the Odds|
|11.00 UTC||17-June||Introduction to Currency Trading: Is it For Me?|
|11.30 UTC||18-June||Trading with the Killswitch Approach|
|10.00 UTC||19-June||Supply & Demand – Approach to Trading|
Belangrijke economische agendapunten
Kijk uit naar de belangrijkste economische agendapunten deze week:
|02.00 UTC||15/06/2020||China Industrial Production / Retail Sales|
|01.30 UTC||16/06/2020||RBA Monetary Policy Meeting Minutes|
|03.00 UTC||16/06/2020||Bank of Japan Rate Decision|
|09.00 UTC||16/06/2020||German/EZ ZEW Economic Sentiment|
|12.30 UTC||16/06/2020||US Retail Sales|
|06.00 UTC||17/06/2020||UK Inflation Rate|
|12.30 UTC||17/06/2020||Canada Inflation Rate|
|14.30 UTC||17/06/2020||US EIA Crude Oil Inventories|
|12.45 UTC||17/06/2020||New Zealand Quarterly GDP|
|01.30 UTC||18/06/2020||Australia Employment Change / Unemployment Rate|
|Pre-Market||18/06/2020||Kroger (Q1) – Pre-Market|
|11.00 UTC||18/06/2020||Bank of England Rate Decision|
|12.30 UTC||18/06/2020||US Weekly Jobless Claims|
|14.30 UTC||18/06/2020||US EIA Natural Gas Storage|
|06.00 UTC||19/06/2020||UK Retail Sales|
|12.30 UTC||19/06/2020||Canada Retail Sales|
Flattening the curve? Equities pull back
The daily rate of global coronavirus has hit a new high of 106,000. Whilst the likes of Italy, Spain and Britain get things under some degree of control, elsewhere it’s not looking so good. Of course, the economic effects of the pandemic have very little correlation with the disease, but the response by governments to lock down. The worry is second and tertiary waves are coming, and developed nations fall back on their lock down playbook. It’s far from over.
Markets remain choppy as investors play the waiting game, whilst oil prices have risen again as inventory data painted a bullish picture. PMIs from Europe this morning show improvement but coming off an exceptionally low base in April. Germany’s services PMI jumped from 16.2 to 31.4. France’s rose from 10.2 to 29.4.
It’s a step in the right direction, but remember how these PMIs are calculated – respondents can only answer if the state of their industry is better, worse or the same as the month before. Contraction is still the state of play. Overnight data showed Japan’s exports down 21.9%, the worst decline since 2009; whilst South Korean exports also plunged.
Stocks rose yesterday but eased back today as Asian trade data worried investors. The S&P 500 hit its best intra-day level since March 6th at 2980 (2985 on March 6th was the high), closing at 2971 vs the close of 2972 on that day. The 200-day simple moving average sits just above but the 100-day line has provided the topside resistance for the last two sessions. Futures indicate a lower open.
The FTSE 100 rose 1% on Wednesday but handed back the gains at the open as European stocks faded. Equity indices are near or at the top of the ranges are still posting weekly gains. The US is creeping ahead of the pack with big tech driving things – Facebook soared yesterday after it announced a new e-commerce business that could take on Amazon. The Nasdaq rose 2%, ahead of the broad market, and is up for the year and not far away from its all-time highs.
Oil prices rose firmly after a bullish inventory report from the EIA. Crude stockpiles declined by 5m barrels in the week to May 15th, against an expected build of 1.2m barrels. But it was less bullish when you dig deeper into the report. Gasoline stocks rose 2.8 million barrels vs an expected 2.1m drop. Distillate stockpiles were up by 3.8 million barrels, which was more than expected.
WTI (Aug) pushed up above $34 and is looking to close the March 6th-9th gap. Oil is riding higher on great-than-expected loss of output in the US. After the EIA this week predicted a sharp decline in US output next month, the concern will be that higher prices sees the taps opened again.
Andrew Bailey, the governor of the Bank of England, chose his moment well: just as he told MPs that the Old Lady is prepared to consider negative rates, a UK gilt auction delivered a negative interest rate on three-year paper.
The fact that the government can get paid to borrow money shows just how much central banks have already become ‘the market’ for sovereign debt. The problem is, as discussed in a recent note, getting out of a negative rate cycle is tricky and the Eurozone and Japan are hardly poster children of monetary policy success.
Minutes from the Fed’s last meeting were also released yesterday and showed a willingness to look at yield curve control, and still indicated no desire to go down the negative rate path. Once you go down it, it’s exceptionally difficult to get out. Moreover, it’s bad for banks and the financial system and doesn’t make consumers more likely to get out and spend.
Chart: SPX tests 100-day resistance
Gold breaks out, European equities rally
Equities and oil are higher as investors cautiously welcome signs lockdowns are ending but markets remain in this tug-of-war pattern where we simply don’t know whether the damage will be a lot worse than feared or the recovery will be much swifter. Indices remain in broad ranges are still seeking direction.
On Sunday, Robert Chote of the UK budget watchdog warned a V-shaped recovery was unlikely. Fed chair Jerome Powell cautioned recovery in the US would likely be slow, and it could take a vaccine to see activity rebound to 2019 levels. This week in a testimony to Congress he will likely stress the ‘whatever it takes’ mantra and push for more on the fiscal side.
Absent buying equities and negative rates, the Fed has had its six. What’s going to be interesting is whether the policy response of different governments leads to different speed recoveries. This is most dangerous moment for people and the economy – the logic of lockdown made sense to prevent health system overload, but we are not anywhere near that now. We need to get moving a lot quicker than we are.
The Atlanta Fed forecasts GDP will contract 42.8% in the second quarter. Overnight data showed Japan has entered a recession already. The Bank of England’s assumptions for a V-shape recovery look rather naïve.
Gold has emerged as a clear winner from the economic turmoil created by the pandemic. Prices were slotted into a consolidation pattern since mid-April and a tentative upside breach was attempted on Friday, but the daily close was below the $1747 level that marked the multi-year high struck last month. There has been more energy about gold bulls today and prices have driven up to above $1760, the highest since Oct 2012. The peak in that month of $1795 is the next target for bulls.
As noted in Friday’s commodities note, although gold was sold off in February and the first half of March, this was prompted by a scramble for cash at all costs due in part to a dollar liquidity squeeze that has since eased considerably. Gold has made substantial gains in tandem with risk assets since the March lows.
Whilst sentiment and relative dollar values exert short-term pressure, the combination of negative real yields and the prospect of an inflation glut due to massively increased money supply is sending prices higher. Whilst the Covid-19 outbreak is at first a deflationary shock to the economy, the aftermath of this crisis could be profoundly inflationary.
Gold remains the best hedge against inflation which may be about to return, even if deflationary pressures are more pronounced right now.
Equities finished Friday on a more solid footing but were still lower for the week. On Monday, European equities charged out of the gate. Basic resources, oil & gas and autos led the way. The FTSE 100 rose over 2% reclaimed 5900 and was just about flat with where it opened last Monday. The DAX rallied 2% in early trade after declining 4% last week.
Global indices are still in their recent ranges, albeit moving back towards the top end. Today’s early bounce only wipes out last week’s losses. At 5940 the FTSE 100 is about 50% back to the Apr 30th peak.
Regulators across Italy, France, Spain and others have decided to end the ban on short selling, which was introduced in March to stem some of the bloodletting. This move signals greater confidence among regulators that the bottom is in for equities.
WTI oil (Jun) jumped $1.70 to above $31 and Brent futures also traded higher amid signs the market is rebalancing a little faster than had been expected. Easing of lockdown measures has been positive, whilst supply has come off due to shut-ins. OPEC has been talking up making deeper cuts for longer. The worry is that this rally simply prompts producers to carry on pumping.
WTI for August was only a little higher than the June contract as the contango spread tightens. Maybe things are not so bad as we thought in oil, but the issue of storage capacity remains as long as supply exceeds demand.
In FX, GBPUSD crashed through key support on Friday and closed at the lows of the day. The pair opened lower today but has pared losses. The tenor of Brexit talks is not supportive for sterling right now, after talks last week ended with no progress. Time is running out fast and we become less sure that either side has the political will and capital to expend on this when dealing with the economic catastrophe of the pandemic.
Chatter around the Bank of England looking at negative rates is another weight on sterling right now. It’s a huge moment as we deal with a massive increase in government debt, run huge twin deficits and exit the EU whilst in the midst of the worst global recession since the 1930s. What then happens to the pound if rates go negative?
After losing the 1.2160 support GBPUSD has now opened up a potential retreat to 1.18. Next Fib support at 1.2034.
BoE: for illustrative purposes only
The Bank of England left rates at 0.1% and, to the surprise of some, did not increase the size of its asset purchase programme. Sterling bounced back a bit after a week of losses following the decision. GBPUSD tested support at 1.23 overnight but spiked north of 1.2380 on the Bank of England’s announcement.
The assessment of the economy from the Bank is grim. The BoE said indicators of UK demand have generally stabilised at “very low levels” with a reduction in the level of household consumption of around 30%. “Consumer confidence has declined markedly, and housing market activity has practically ceased,” the MPC statement noted. Company sales are seen –45% in Q2, with business investment –50%.
In a ‘plausible illustrative economic scenario’, the BoE forecasts a fall in UK-weighted world growth from 2% in 2019 to -13% in 2020, before bouncing back 14% in 2021 and 4% in 2022. Andrew Bailey, the new governor, said there will be some long-term damage to the capacity of the economy, but in the illustrative scenario, these are judged to be relatively small. The Bank seems to be in the –V-shaped reovery camp.
Two things stand out, Firstly, more QE is coming, even if it’s not today. Two members of the MPC voted to increase the stock of asset purchases by £100bn at this meeting.
Secondly, the Bank’s assumptions on economic recovery seem rather optimistic – let’s hope the plausible scenario is right. I have a nasty feeling it won’t be as there will be deep and lasting changes to the way people shop, work, travel and simply move around. The deep central bank and government support, especially furlough schemes, will make a huge difference, but things won’t be the same. IAG today says the level of demand in 2019 won’t recover properly until 2023.
After a decent start to the trading session yesterday the S&P 500 failed to break above 2890 again and bears took hold later to drive the index down 20pts. Europe was dragged lower into the close with the DAX finishing down 1%. European markets rallied a bit at the open on Thursday but the move lacks much conviction – the US will be the driver today and there futures indicate a bounce.
US 10-year bond yields rose to their highest in three weeks, pressuring gold, which has relinquished the $1700 handle to test the $1682 support area. US real yields rose to –0.38% from –0.44% as 10yr Treasuries drove to 0.7%.
Oil is in a holding pattern after the EIA said crude inventories rose less than expected. Crude oil stocks rose 4.6m barrels in the week to May 1st, whilst gasoline inventories fell on a pick-up in driving as states reopen. Domestic oil output in the US fell 200k bpd to 11.9m bpd. Inventories at Cushing, Oklahoma rose a little over 2m barrels, the smallest increase since late March. Having rallied to $26, WTI retreated but has found near-term support at $23 and is bound by resistance at $24.50. The Brent futures curve indicates a narrowing in contango spreads that indicates markets are less fearful of oversupply in the physical market.
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|
Brexit day, Bank of England eyes cut, FAANG earnings on tap
At long last, after more than three and a half years and much political and market turmoil, Britain will finally leave the European Union on Friday, January 31st at 11:00 GMT. Bongs or not, there will be celebrations and commiserations in equal measure. For the pound, the focus now is on the trade deals with the EU and the US – at Davos last week it was made clear this is not going to be easy.
Bank of England to cut?
Market pricing suggests a roughly 50/50 chance the Bank of England will cut rates by 25bps to 0.5% on Thursday. Whilst hard economic data prior to the election showed a softening in activity, surveys since the Tory win have improved.
Weak inflation – which rose just 1.3% against 1.5% in November – could swing it for the doves. CPI inflation rates are at their lowest since 2016. There is a sense the Bank doesn’t want to get behind the curve of market expectations and is seeking to get a jump on markets whilst still teeing up the cut. It would be following the Fed’s playbook in cutting early in order to prevent a downturn.
Tesla’s record run faces test
Shares in Tesla have enjoyed a remarkable run up to record highs, valuing the company at $100bn. But will the fourth quarter numbers deliver on the promise?
Influential analyst Dan Ives at Wedbush thinks the company will at least meet expectations. He says: “While Tesla shares remain on a historic rally heading into earnings, the bull party likely continues as the aggressive trajectory of Giga 3 production and demand out of Shanghai look very strong out of the gates and is the catalyst to move our price target from $370 to $550 ahead of earnings”.
Apple has also been making new record highs as it gears up to report its fiscal first quarter earnings. This is always Apple’s strongest as it chalks up the holiday season and new iPhone models. We’ve had decent indications from the Services side of the business indicating that its pivot to being more of a Services business is in full swing. App store customers spent a record $1.42bn between Christmas and New Year, 16% up on last year, the company has said. Management also revealed that Apple News is drawing over 100m monthly active users across the US, UK, Canada and Australia. This is all to the good – Services margins are about double that for the rest of the business and will mean re-rating of the stock going forward.
New Fed makeup
No change expected from the Fed – don’t expect Powell to do anything other than signal he can’t imagine hiking again. A new makeup of the voting membership of the FOMC will provide some interest but is unlikely to change things materially – hawks Eric Rosengren and Esther George, along with doves Charles Evans and James Bullard, are set to depart. They will be replaced by arch dove Neel Kashkari, the more balanced Robert Kaplan and two more hawkish-leaning governors, Loretta Mester and Patrick Harker.
(All times GMT)
09.00 GMT 27-Jan Germany Ifo Business Climate
00.30 GMT 28-Jan Australia NAB Business Confidence
13.30 GMT 28-Jan US Durable Goods Orders
15.00 GMT 28-Jan US CB Consumer Confidence
After-Market 28-Jan Apple – Q1 2020
23.50 GMT 28-Jan Bank of Japan Summary of Opinions
00.30 GMT 29-Jan Australia Inflation Rate
07.00 GMT 29-Jan Germany GfK Consumer Confidence
15.30 GMT 29-Jan US EIA Crude Oil Stocks Change
19.00 GMT 29-Jan Federal Reserve Interest Rate Decision
After-Market 29-Jan Microsoft – Q2 2020
After-Market 29-Jan Facebook – Q4 2019
After-Market 29-Jan Tesla – Q4 2019
08.55 GMT 30-Jan Germany Unemployment Rate
10.00 GMT 30-Jan Eurozone Business & Consumer Confidence Surveys
12.00 GMT 30-Jan Bank of England Interest Rate Decision & Inflation Report
13.00 GMT 30-Jan Germany Preliminary Inflation Rate
13.30 GMT 30-Jan US GDP Growth Rate (Q4)
15.30 GMT 30-Jan US EIA Natural Gas Stocks
After-Market 30-Jan Amazon – Q4 2019
10.00 GMT 31-Jan Eurozone Preliminary Q4 GDP
13.30 GMT 31-Jan US Personal Income and Personal Spending