Key Points From This Week
Fed Announces New Liquidity Program
The Fed announced a further set or surprise measures this week in the form of a $2.3 trillion corporate loan system. The funding has been made available to the Fed via the emergency coronavirus package approved by US congress last month and will aim to help small – medium business during the current economic difficulties. Money will also be made available to struggling states and cities. Of The $2.5 trillion, $600 billion will be offered to banks in four-year loan packages.
OPEC+ Agrees New Production Cuts
Following the failure of the March OPEC meetings and the consequent further collapse in oil prices, OPEC and non-OPEC producers led by Russia finally agreed new terms this week. At an emergency meeting called by Saudi Arabia, OPEC+ agreed a draft-proposal which outlines a cut in production of 10 million barrels per day until July, then an eight million barrels per day cut until the end of the year. Starting in 2021, a reduction of six million barrels per day will last for 16 months. Oil prices were lower in response to news of the deal which is reportedly “still dependent on consent from Mexico” and also falls far short of the 15 million-barrel reductions touted by Trump.
UK Lock-down Extended, PM Hospitalised
With the spread of the virus still yet to peak in the UK, the death toll there has been increasingly rapidly. Earlier in the week, the UK PM Boris Johnson was taken to intensive care for treatment or his coronavirus symptoms though has now been discharged. However, with the death till increasing, plans to review the 3 week lock-down in the UK have been suspended for now with the measures set to continue indefinitely.
Key Events Next Week
US Retail Sales
With lock-downs in places across large swathes of America, the country’s retail sector has been heavily impacted by the lack of physical custom. With other key data points having turned lower, investors will now be watching the retail sales figure next week which is used as a key gauge for determining GDP. Of particular note will be to what extent online sales have helped offset the loss of footfall in shops.
Aussie unemployment data will be closely watched next week also. The RBA kept rates on hold at its April meeting, striking a more optimistic tone than was expected. However, the bank did say that it expects unemployment to continue to worsen. Next week’s data will be a key insight into the damage caused by COVID-19 over March.
BOC Rate Decision
The BOC meets next week and with market conditions having stabilised over the last two weeks, there is room for the BOC to keep rates on hold here while it assesses incoming data this month. Massive new liquidity measures by the Fed over the last few weeks will have no doubt taken some of the pressure off the BOC here.
Chinese GDP will be another key release next week. While the manufacturing sector was able to recover last month, the broader impact on the economy is likely to be far more prolonged and the market will now be keen to see the true extent of the economic toll suffered by China over Q1 following a dip down to 6% in Q4 2019, the lowest reading in 30 years.
Keep An Eye On
COVID-19 Lock-down Updates
With many European countries approaching their initial lock-down deadlines next week, the risk of these lock-downs being extended could provide a headwind to risk appetite and also see a fresh build in central bank easing expectations to help buffer the economic cost of continued loss of activity.
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