Trading Week Ahead: 6th-10th April 2020
Key Events This WeekSunday
Daylight Saving Time Ends – Australia
AUD RBA Interest Rate Decision, Rate Statement
AUD Trade Balance
USD OPEC Emergency Meeting
EUR ECB Monetary Policy Meeting Accounts
USD Initial Jobless Claims
CAD Employment Change and Unemployment Rate
GBP GDP and Manufacturing Production
RMB Consumer Price Index
USD Consumer Price Index
(Times adapted to AEDT timezone)
U.S. dollar strength returned to the market last week as traders witnessed another flight to safety amid ever-growing COVID-19 concerns. After its record-breaking run in March, the dollar index (DXY) whipsawed and picked up momentum to finish the week on a 2.35% rally. This was despite US Non-Farm Payrolls missing the mark by a huge margin Friday, with actual reports of 701K jobs coming in against a forecasted 100K drop. U.S. unemployment also rose to 4.4% from 3.5%, a near 50-year low in February, bringing to the end a decade of job growth for the world’s number one economy. With the payrolls figures only taking into account data up to the week ending 14th March it certainly doesn’t give us the full picture, and we should brace ourselves for a far bigger decline next month.
Will supply for oil be cut?
The ongoing price war between Saudi Arabia and Russia seemed to be on the verge of de-escalation last week and subsequently, we saw oil report its best week on record. Price soared during a 25% rally driven by investor optimism that the end of the feud was near after OPEC officials agreed to meet to discuss supply cuts. At Friday close Brent crude was trading just over 16% higher, while WTI rose 14.4% to $25.53 a barrel, however, there’s still a long way to go for both to recover to early 2020 highs, with YTD figures for both Brent and WTI strikingly lower by -47.23% and -52.55% respectively. Encouraging the supply cut and a probable further cause of the $30 a barrel rally, President Trump took to Twitter on Thursday to make his opinions perfectly clear, ‘I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more’.
OPEC was set to hold an emergency virtual meeting today but over the weekend, there were reports that this will now be delayed until later in the week after it emerged there were renewed tensions between Saudia Arabia and Russia. As a result, you may see increased volatility at the beginning of today’s trading open, but with the whole world on lockdown, the wider question remains of whether any supply cut action will produce results. Seemingly with global demand for oil at unprecedented lows, a drop in supply is hardly going to be enough to offset the lack of oil consumption. It’s probably fair to say that until everything returns to some degree of normalcy, the future of this particular commodity will remain uncertain.
AUD/USD plunges further
There were further worries for the Aussie last week, as on the back of renewed US dollar strength and further risk-off sentiment, AUD/USD broke briefly below the latest support level of 0.6000 Friday, and the market triggered stops just below this level before the Non-Farm Payrolls announcement. With an increasing number of COVID-19 cases being recorded throughout the country, eyes are now on how the dollar might maintain higher ground. Concerns could also heighten if another wave of confirmed cases cause China to return to lockdown.
Monday’s rate decision meeting may provide more clarity around the situation, but the Governor could wait for more significant developments to unfold before announcing anything concrete on the economic programme put in place, having already indicated they see no appetite for negative rates. With the Aussie dollar under pressure, and paired with the alarmingly high number of death rates and lockdown extension in the U.S., we could see further downside as the impact of ongoing market uncertainty becomes clearer. There was chatter in the U.S. before the weekend about another round of fiscal stimulus, following quickly on the heels of the $2.2 trillion dollar deal recently cleared through the House, but even this may not be enough to stabilise the world economy in the wake of ever-worsening events.
Volatility returns to the Gold market
A rise in Gold last Thursday sparked another bout of market volatility after the number of US jobless claims came in at 6.6 million and hit record highs for the second time in two weeks. With the precious metal seeing a recent mixed performance due to the COVID-19 crisis, and with U.S. dollar liquidity improving, it could be said that there is no clear direction on where Gold is headed over the coming weeks. With this in mind, the Swiss precious metals refinery PAMP announced on Friday that they could restart operations after authorities gave the go-ahead. However, they are said to be processing at less than 50% capacity. Concerns are emerging around the possibility of reduced purchases from Central Banks and the decline in demand from both the jewellery and industrial sector.
Key dates this week
The Reserve Bank of Australia’s rate decision may be one to look out for. The Central Bank has already slashed interest rates and initiated quantitative easing for the first time, but will they expand on fiscal policy as a response to the worsening severity of COVID-19? They certainly don’t seem to have much room for manoeuvre.
In the U.S. the next round of Initial Jobless Claims data will be released and we already know that the figures coming, will be much larger than last weeks 6.6 million, an unimaginable level over a very short timeframe. The figure recorded last week was released prior to another big wave of business closures, and with further lockdown policies now in place, it should mean we can anticipate a bigger surge in figures of unemployment. But how big will it be? Another sizeable increase above forecasts could certainly send markets back into a spin…