The Week Ahead – China and Iran U.S Foreign Policy, COVID-19, Monetary Policy, and Data in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 57 stats in focus in the week ending 8^th May. In the week prior, 60 stats had been in focus.

For the Dollar:

It’s a busy week ahead for the greenback.

In the 1^st half of the week, the market focus will be on April’s ISM Non-Manufacturing PMI and ADP Nonfarm employment change figures.

While the markets all too aware of labor market conditions, expect both sets of numbers to have an impact. The ADP numbers are likely to be quite horrific…

On Thursday, the markets will be looking for a marked fall in weekly initial jobless claims figures ahead of Friday’s data deluge.

Another 3m plus increase in initial jobless claims will likely test market risk appetite on the day.

On Friday, April’s nonfarm payroll and wage growth figures wrap things up. Following the surge in jobless claims, the markets will get an idea of where the bottom of the abyss sits…

The unemployment rate is forecasted to jump to 16%… Even the eternal optimist will likely gasp at the numbers.

Expect March factory orders numbers on Monday and 1^st quarter unit labor costs and nonfarm productivity on Thursday to be brushed aside.

The Dollar Spot Index ended the week down by1.30% to 99.079.

For the EUR:

It’s also a busy week ahead on the economic data front.

Through the 1^st half of the week, Spain and Italy’s private sector PMIs are due out on Monday and Wednesday.

Following the market’s reaction to the prelim numbers from France, Germany, and Spain, however, don’t expect too much influence.

Both Italy and Spain have been far more adversely affected by COVID-19, which will deliver dire numbers.

Expect March retail sales figures from the Eurozone and German factory orders to also be brushed aside on Thursday.

In the 2^nd half of the week, the release of French non-farm payrolls and German trade data will also be a non-event.

For the EUR, a continued downward trend in new coronavirus cases is a must. This, coupled a further easing in lockdown measures, would provide support in the week.

The markets are currently forward-looking from an economic perspective…

On the policy front, the markets will be looking for progress on an EU COVID-19 aid package…

The EUR/USD ended the week up by 1.46% to $1.0981.

For the Pound:

It’s a relatively quiet week ahead on the economic calendar.

Finalized April service and composite PMI numbers are due out on Tuesday along with construction PMI numbers on Wednesday.

Barring a material downward revision to the composite, we would expect the numbers to have a muted impact.

In a shortened week, with the UK markets closed on Friday, the BoE monetary policy decision is the main event on Thursday.

While there’s unlikely to be any cut in interest rates, the BoE may deliver further monetary policy support. The UK remains in lockdown going into May, which will weigh on the economy further as Brexit uncertainty continues to shroud Britain.

Key in the early part of the week will be COVID-19 numbers and plans to ease lockdown measures. The markets are expecting the release of the government’s plans in the week ahead.

The GBP/USD ended the week up by 1.12% to $1.2506.

For the Loonie:

It’s a relatively quiet week ahead on the economic calendar.

March trade figures on Tuesday will likely have a muted impact ahead of April’s Ivey PMI on Thursday.

While we would expect the PMI to have some influence, avoiding sub-40 would likely be considered positive.

At the end of the week, employment figures will also be in focus. There will need to be a marked drop in the number of layoffs to limit any downside in the Loonie.

Away from the numbers, a continued easing in lockdown measures globally should also provide support. While demand for crude oil continues to be an issue, the markets will expect a pickup as economies reopen.

The Loonie ended the week up by 0.10% to C$1.4089 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a relatively busy week ahead.

New home sales and building approval figures on Monday will garner some attention. The housing sector is at the mercy of consumer sentiment, which took a knock in March.

March retail sales and trade data are due out on Wednesday and Thursday and will also garner some interest.

We don’t expect too much influence, however, with fiscal and monetary policy already delivered as a result of the COVID-19 pandemic.

The numbers will give an initial sense of what lies ahead. China was in shut down mode and consumers were all too aware of the likely economic impact of the pandemic.

Away from the numbers, the RBA monetary policy decision on Tuesday will garner plenty of interest.

The last minutes suggested that monetary policy will be on hold near-term. A similar message on Tuesday would provide further support to the Aussie Dollar.

Expect market risk sentiment, COVID-19 news, and lockdown easing plans to also influence in the week.

The Aussie Dollar ended the week up by 0.84% to $0.6418.

For the Kiwi Dollar:

It’s a quieter week ahead on the economic data front.  Early in the week, economic data is limited to March building consents and 1^st quarter employment figures.

Expect 1^st quarter employment change figures to have some influence on Wednesday.

On Thursday, inflation expectation figures are unlikely to be too impressive following the recent uptrend.

While New Zealand is now free COVID-19, the indirect economic impact is significant, however.

Dire 1^st quarter employment numbers would support the dovish outlook on the monetary policy front. The big question, however, is whether the RBNZ can avoid delivering negative rates down the road…

The Kiwi Dollar ended the week up by 0.76% to $0.6063.

For the Japanese Yen:

It’s a shortened week, with the Japan market closed Monday through Wednesday.

Following last week’s support from the Bank of Japan, expect the markets to brush aside economic data in the week.

Key stats are limited to March’s household spending figures and April’s finalized services PMI.

Outside of the numbers, however, the Yen could come under pressure should the spread of the virus accelerate… News from late last week was Yen negative as reports of a marked pickup in new cases hit the wires.

The Japanese Yen ended the week up by 0.56% to ¥106.91 against the U.S Dollar.

Out of China

It’s another relatively quiet week ahead on the economic data front.

April services PMIs figures and trade data are due out on Wednesday and Thursday.

Expect the numbers to influence, with the markets looking for the private sector to avoid a contraction.

April’s trade figures will give the markets an idea of what impact global demand is having on the Chinese economy.

The Chinese Yuan ended the week up by 0.26% to CNY7.0632 against the U.S Dollar.

Geo-Politics

OPEC

OPEC+ delivered price support last week by beginning to rein in oil production. Trump’s threat to the Saudis, however, will unlikely go unnoticed. April production figures are reportedly on the higher side, which would mean that production cuts would need to be more significant. It’s not about the size of the cuts but the actual production figures.

It wouldn’t be the first time that producers cranked up production ahead of a demand to cut output…

Expect inventory numbers in the coming weeks to have greater influence alongside the news wires. Trump could target Iran further and put more pressure on the Saudis.

UK Politics:

We wrote many moons ago of a UK – U.S trade agreement and its influence on the UK – EU Brexit talks.

News of UK – U.S trade negotiations commencing on Monday will redirect the UK government’s attention away from the EU.

This can only be a good thing for Boris and the team. A swiftly negotiated and fair trade agreement would certainly give Brussels reason to blush and be anxious. Trump has continued to threaten the EU with tariffs. With the Presidential Election rapidly approaching, there couldn’t be a better time to ruffle the EU’s feathers, while supporting the Anglo-American relationship…

For the Pound and the UK government, the EU may need to concede more than it had intended. One other positive is the fact that EU member states are not even able to support each other.

Near-term, chatter on the need for an extension to the transition period will also be likely.

U.S Politics:

As at the weekend, tensions between the U.S and Iran remained elevated. One thing is certain, Iran will not back down in the Gulf, which makes some sort of action inevitable…

That’s one distraction for voters who are now seeing Trump attempt to lay the coronavirus pandemic on Beijing’s doorstep.

There’s been talk of U.S sanctions on China as punishment for the spread of the coronavirus… As the global economic meltdown continues, the last thing the world needs is another full-blown trade war between the world’s largest economies…

The Coronavirus:

Over the course of last week, the number of new coronavirus cases globally took a downward swing.

In the week ending 1^st May, the total number of new cases rose by 333,637 to 3,392,718 on Friday. In the previous week, ending 24^th April, the total number of new cases had risen by 347,549.

The downward trend was attributed to the EU, which reported just 28,403 new cases in the week ending 1^st May. In the previous week, the EU had reported an increase of 43,699 new cases.

From the U.S, there was also a week-on-week fall in new cases. By contrast, however, the number of new cases was on an upward trend throughout the week…

From the market’s perspective, there are 3 key considerations:

1. Progress is made with COVID-19 treatment drug remdesivir.
2. The downward trend in new coronavirus cases continues.

• Governments progress with easing lockdown measures.

Corporate Earnings

Expect earnings to remain in focus in the week ahead.

While the markets are not expecting great things, it’s only going to get worse before it gets better. That can never be a good thing when considering the current levels across the equity markets.