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Week Ahead – More Easing on the Way

No such thing as a dull week

It’s been another interesting week in financial markets. One of economic reopening, second waves, stark warnings, recession and much more. The week ahead is going to be no less eventful as investors come to grips with the reality of the situation we’re all facing while factoring in the seemingly endless supply of monetary support.

Add to all of this this the renewed tensions between the world’s two largest economies. Given that a trade war between the two was once viewed as being a major risk to the global economy, it’s extremely unwelcome now. But then, China is attracting a lot of attention about its handling of the coronavirus in the early stages of its detection and Donald Trump is facing an election in six months (in case anyone forgot). We could see a cold war scenario of increased hostilities with neither side wanting to pursue anything more for the remainder of the year.

Last, but certainly not least, we have oil. Last month’s plunge to minus $40 on the May contract is not expected to see a repeat performance. A lot has changed since then. But with the June expiry on Tuesday, who knows what chaos could ensue. Prices are inflated after an impressive rebound in recent weeks, maybe even vulnerable. The start of next week will be very interesting indeed.



The US economy’s staggered reopening is expecting to show incremental improvements in economic data this week.  US business activity is expected to bounce from record lows as some states start to reopen.  Housing data is expected to be persistently bad, while weekly initial jobless claims is expected to continue to decline alongside continuing claims.

The primary driver for global equities remains improving economic data as global economic activity picks up and whether renewed outbreaks will disrupt the reopening of economies.  Investors will closely follow the daily COVID-19 updates to see if children continue to see spikes in new cases and if any new hotspots emerge.

It is also important to keep a close eye with the US-China relationship.  President Donald Trump seems determined to keep the hard talk going against China.  Trump’s threats to cut off ties with China are almost laughable as that would create an unwelcome shock to a very weak US economy.  China will not back down to Trump’s threats and will quickly announce countermeasures if he follows through with any of them.  A complete meltdown of US-Chinese relations is not expected, but intensifying tensions will only add to a risk-off trading environment.

US Politics

Partisan politics are expected to eventually end as much of the country still struggles from the shuttered economy.  Nancy Pelosi’s $3 trillion-dollar package is needed, but Republicans will require many changes.  The progressives are also unhappy with the bill, but it’s hard to imagine that some stimulus won’t pass in the near future.  Both sides of the aisle will likely try to avoid further economic disaster and risky assets should see some support come the passing of another bill.


The first week of lockdown easing has brought confusion, debate and worrying images of packed tubes. It’s also been accompanied by news that the worst monthly economic contraction on record (data going back to 1997) and 2% as a whole in the first quarter. When you consider that the lockdown only started a week before the end of the quarter, you can imagine what the Q2 data will look like.

Next week Andrew Bailey will be joined by three of his colleagues from the MPC to answer questions from the Treasury Select Committee on the economic impact of the coronavirus, as the country passes the peak of the first phase. I don’t expect there’ll be any surprises, just harsh truths, something investors seem willing to ignore.


Germany is officially in recession after its fourth quarter was revised lower to -0.1%. Naturally it received the good old “who cares” in the markets. Mild technical recessions are something to aim for when you’re in the midst of a severe recession with a hugely uncertain outlook. The euro area as a whole just avoided a similar fate but, again, who cares.

On a more promising note, the number of cases and deaths continues to decline which is promising. With lockdown measures easing, this will be key over the next few weeks to further easing and economies returning to something resembling normal.


Efforts to stop the collapse in the Lira by restricting foreign transactions and preventing short-selling appear to be working, with the currency recovering from its record lows against the dollar this week. None of this changes the fact that investors are very concerned about the Turkish economy and its ability to deal with the coronavirus.

The CBRT is expected to continue cutting interest rates next week though – 50 basis point consensus – despite the currency weakness and potential inflation that lies ahead. Markets have been forgiving in the past but may not feel in such a generous mood now. Of course, the restrictions will likely affect that in the short-term but won’t last forever.

South Africa

The South African Reserve Bank is expected to cut interest rates by 50 basis points next week, although forecasts do vary. The economy was in disarray already and severe lockdown measures haven’t helped. The country has already lost its final investment grade rating so S&P’s review next Friday shouldn’t be of too much interest. Pressure may grow on Ramaphosa in the coming weeks to ease restrictions, with some already questioning whether the economic damage is greater than that of the coronavirus itself.


The economic recovery is expected to continue in China with the PBOC this week signalling more powerful and broad reaching stimulus measures are on the way to support growth and employment. We expect the Loan Prime Rates to see further cuts. Two dark clouds on the horizon are secondary COVID-19 outbreaks occurring in secondary cities near North Korea and Russia. The trade situation with the US is in danger of deteriorating. US administration members from the President down, labelling COVID-19 the “Chinese plague” and threatening new sanctions if China does not meet its trade agreement obligations. The Presidential election is going to be fought on who is toughest on China.


India’s government has loosened up lockdown rules and financial markets will carefully watch to see how bad the next wave of cases will be.  The financial system is facing renewed pressure after the closure of Templeton Funds there last month. That has sparked a continuing flow of funds out of the non-bank financial sector and threatens to deepen the freeze in credit to SME’s. The government’s new budget threatens to crowd out private borrowers with their deficit financing,


Australia employment fell by 574K in April. ABS said the real figure is actually much higher.However lockdowns are being eased across the country which should see a sharp rebound. AUD has fallen this week on global economic fears. High beta to China and world trade leaves Australia markets vulnerable to downward pressure. No data of significance next week.


Japan has extended the nationwide state of emergency to the end of May with 34 prefectures reopening next week – not Tokyo or Osaka. 2nd extra budget being formulated. BoJ says willing to increase easing if needed. USD/JPY continues to range. Risk aversion return could see USD/JPY fall sharply.



Oil prices are heading higher once again as WTI closes in on $30 a barrel, almost $70 above the level it plummeted to almost a month ago. I mean, that’s staggering even when you forget about the negative prices. There’s clearly a different feel to the oil market heading into this contract expiry, with production cuts having been enforced globally, either through deals or unilaterally.

But will it be enough to avert another panic selling moment? The odds have certainly reduced and there’s no sign of caution among traders but there’s plenty of time yet. There’s a fine line between confidence and complacency and we can only hope that line hasn’t been crossed or early next week it could quickly unravel.


In lockdown, it can be easy to lose track of what day it is but take one look at a gold chart and that Friday feeling is shining through. Consolidation over the last month has made this running daily commentary quite painful at times. You’d swear we’re living in relatively mundane times.

Finally it seems gold is catching up with reality, maybe even – dare I say it – acting like a safe haven (ish)? The breakout came during some weakness in risk markets and while they have bounced back, I wonder whether the gold move is being sustained more by technical factors than the fundamental that triggered the move in the first place. Whatever the reason, a break of $1,750 could kick it into a higher gear.


Bitcoin enthusiasts are some of the most bullish people you’ll come across. No matter what is happening, it’s bullish for bitcoin. With central banks around the world throwing everything they have at the crisis, I can imagine there’s a lot of very, very bullish forecasts right now. We’ve seen three runs at $10,000 and the failure doesn’t appear to be shaking them at all. The excitement is palpable. If this breaks, it could be a very bullish catalyst.

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