Mid-Week Themes – Hope Fuels Demand for Crude and Riskier Assets!

Usually, the third week of the month is a quiet one. However, it appears that there are geopolitical processes occurring that should be monitored.

There are Fed events on the economic calendar for this week. Could you comment on those?

It’s been a busy week for the FED Chair. Ahead of the Monday open, Powell provided the markets with assurances that the FED had plenty of ammo left to steer the U.S economy out of the current meltdown.

The markets then focused on Tuesday’s testimony, which was given alongside Mnuchin.

Powell gave the markets another dose of reality, stating that the U.S economy would unlikely to recover until the end of 2021.

Sunday’s speech had delivered riskier assets a boost, while Tuesday’s testimony weighed on risk appetite.

Mid-week, the focus is on the FOMC meeting minutes. Will there be any talk of negative rates? The markets will be looking for what’s in store and when the next move will come…

In reality, however, the FED may need to hold off until lockdown measures have been removed. An impact assessment of both fiscal and monetary policy delivered to date would be needed at a minimum.

The Markets appear to be looking at all the hints about the upcoming actions of the Fed, as forecasting those is a top priority.

Meanwhile, how are Crude Oil Prices doing?

It’s been another positive week for crude oil prices. At the start of the week, the news of an oil tanker armada heading for China delivered a boost.

An easing in lockdown measures has also provided crude with support along with the pullback in crude oil production.

Production had been at a record high ahead of the cut in output, however, which could become an issue down the road.

It’s been a great month, however, with WTI and Brent up by close to 50%. Prices are still down by close to 50% year-to-date, however.

There’s a long way to go, however. While lockdown measures continue to ease, demand globally will need to ramp up to deliver continued support.

In addition to Jerome Powell and the Fed, the market participants should watch out for a Trump announcement.

In the meantime, the coronavirus is still present and impacting the global economy. How is the easing of the lockdown going on?

 

The U.S government and member states have continued to ease lockdown measures in a bid to revive their respective economies.

Some have been able to make bolder moves, with Italy removing borders controls for people entering and leaving within the EU.

U.S President Trump has also remained adamant that the opening of the U.S economy is a must, irrespective of the impact on COVID-19 numbers.

It does remain to be seen, however, whether there will be a marked pickup in consumption, travel, and activity in general.

We can expect some caution near-term that will likely limit any material improvement in consumption.

It is a start, however, and at a minimum, the downward trend in new coronavirus cases will need to continue. This is a must for the markets to continue to have a more positive economic outlook.

It appears that we can see the light at the end of the tunnel.

Anything to mention in regards to economic data releases?

On the economic data front, expect the markets to continue to brush aside March and April figures. Both months were an economic right-off, with extended lockdowns in place.

Prelim private sector PMI numbers from the Eurozone, the UK, and the U.S will draw plenty of attention later in the week, however.

The markets will get a sense of whether there has been any impact from the initial moves to ease lockdown measures.

We saw China’s private sector PMIs see a sharp rebound in response to the easing of measures.

For the U.S, service sector activity will need to see a marked improvement. For the EU, the markets will likely forgive another month of dire manufacturing PMIs. After all, the global supply chain remains broken.

Service sector PMIs will need to pick up from record lows, however, as non-essential businesses began to open earlier in the month of May…

For the UK, the numbers are likely to continue to remain particularly week as lockdown measures continue to weigh.

As we mention the UK, how are the negotiations continuing between the EU and the UK?

Till now, Brexit negotiations have made very little progress. The EU has even threatened to take the UK to court over a breach of freedom of movement rules.

In itself, the threat is a reflection of just how dire relations have become.

Boris Johnson continues to refuse to extend the transition period that leaves the chances of a hard Brexit in place.

We have seen the Pound bounce around as a result but could slide to sub-$1.20 levels by next month.

A blueprint needed to be in place by June for the UK government to continue talks.

Fisheries and trade remain 2 key areas and, for the Pound to find any support, progress is going to be needed…