Mid-Week Themes – The FED, the ECB, and COVID-19 – The Key Drivers This Week

By looking at the economic calendars, we observe scheduled central bank events.

What should traders look out for during this week in regards to the central banks?

Following Monday’s BoJ, the FED and ECB are in action.

The FED’s unlikely to drop rates to 0% just yet, which is Trump’s desire. Expect Trump to give his 10 cents worth following the FOMC press conference…

The FED will be promising support in a bid to avoid shocking the markets. They will be talking about doom and gloom in order to prepare the markets ahead of 1^st quarter GDP numbers on Thursday. 2^nd quarter GDP numbers will garner more attention, however, following the April lockdown.

We then have the ECB on Thursday. We have seen the EU project come under fire, so it will be an interesting one.

It will come down to the FED, however, when it comes down to the global financial markets.

Central banks have been easing their policies since the start of the pandemic.

Meanwhile, how is oil doing after the last week’s negative prices?

We have seen oil prices continue to struggle, with WTI seeing deep red once more.

Output has been in decline providing support but expect pressure on crude oil prices to remain. Concerns over the economy and the economic outlook remain negatives for crude oil near-term.

Will we see sub-$10, probably not, so expect more chatter on supply cuts. Much will depend on U.S output. OPEC will want to see the U.S chip in before delivering a more material cut in output.

It appears that in the current environment most prior correlations between asset prices are no longer valid.

How about macroeconomic data? Are statistics releases still influencing exchange rates?

We need to get passed March and April figures to see the bottom of the Abyss in the respective economies.

1^st quarter GDP numbers out of the U.S and private sector PMI numbers out of China will garner some attention.

The weekly jobless claims figures will also need to slide back from the recent levels seen over the last couple of weeks.

Overall, however, the stats are not having a material impact on the markets. Coronavirus updates, including the number of new cases and plans to ease lockdown measures, remain the key drivers.

We will need to start seeing May and June economic data for influence on the markets to resume.

Since we mention New Zealand, the country recently announced that it is free from the coronavirus.

How did that impact the country’s currency?

Great news from NZ as we see some more positive news on the coronavirus front.

New Zealand being free of new cases is certainly positive. When we look at economic data out of NZ, it hasn’t been as bad as the markets had anticipated.

Even March trade data this morning impressed, with exports rising by a record amount.

Is the Kiwi Dollar heading for a slide and is the RBNZ going to deliver negative rates?

They’ve talked about it. With a reopening in the NZ economy, a pickup in activity is expected. Other economies reopening, including China, should also provide further support.

One downside is obviously tourism, which will be one negative that the RBNZ will need to consider. And obviously consumption.

We’ve seen the Kiwi Dollar trail the Aussie Dollar this week. That’s largely down to the markets still expecting the RBNZ to deliver negative rates.

Despite good fundamental news, the exchange rate is still set by the central bank.

Could you comment more on the situation in the EU and the pressure from the ECB on EU member states?

In terms of the ECB, Lagarde may be miffed that EU member states were not able to deliver the EUR1tn stimulus package.

That’s likely to come up in Thursday’s press conference. She will want to put pressure on the likes of the Netherlands, Germany, and other northern EU member states.

Even within the ECB, Lagarde’s hands are tied with EU member state representation.

Will the ECB deliver more support, they will have to. There is a sizeable contraction expected, particularly in the 2^nd quarter.

Lagarde may want to drag her feet a little, however, to see how far EU member states are willing to go…

We can expect further progress on this in the coming few weeks.

We then look at the EU project itself. If the EU fails to deliver, the likes of Italy and Spain will question the lack of support at a time of dire straits…

Last but not least. Is there anything else geopolitical happening?

We’ve got the EU project and how the ECB and EU member states step up to support more adversely affected member states. That is one to monitor.

There’s also Brexit. Boris Johnson was looking for a framework to be in place by June. That’s highly unlikely with the British PM only just returning to office. So, will there be an extension to the transition period?

The big one to look out for is the rising tension between the U.S and Iran. Trump will be looking at some sort of raid or an attack on Iran. That would be a great distraction as Joe Biden eats into his lead…

We have also heard the news of the U.S administration going to the UN Security Council stating that they had never actually left the Iran nuclear agreement.

That’s quite a statement considering the fanfare behind the U.S withdrawal.

It does suggest that the U.S is looking to sever the supply of arms from the likes of China and Russia. This could mean that the U.S is preparing for some sort of move against Iran…

That would also be quite a boost for oil prices…