Weekly Market Wrap 04-07/May/2020

Marius Paun | London, UK | Senior dealer | Thursday 07th May 2020

The world ready to ease lockdown measures amid dismal GDP and labour data

The US stock markets started the week under pressure as President Donald Trump continued to blame China for concealing the severity of the outbreak. Referring to the phase 1 of US-China trade deal he also said if Beijing does not buy American goods the deal is off. Many have questioned the timing of the statement considering the fragility of the global economy due the Covid-19 outbreak.

Nonetheless the markets eventually reversed course, led by technology sector with Nasdaq turning positive for 2020 on Thursday. Tomorrow all eyes will be on the non-farm payrolls report anticipated to show 21.4 million Americans lost their job last month which would take the unemployment rate to 16%.

Meanwhile China is rumoured to consider dropping GDP growth target for this year with a final decision to be made at the National People’s Congress take place on May 22nd.

On Wednesday, the UK Prime Minister Boris Johnson signalled that he may lift some of the lockdown measures starting Monday with a full statement due over the weekend. Statistically the UK has now the biggest number of casualties in Europe due to coronavirus pandemic. That’s possibly the reason why Britain seems a bit more reluctant to open its economy at the same pace as their continental partners.

Elsewhere, the Bank of England left its benchmark interest rate unchanged at 0.1% in a unanimous vote. Members of the Monetary Policy Committee also decided to maintain the asset purchasing program at £645 billion. Interestingly 2 out of 9 members voted to increase that target.

One particular event in Europe made headlines worldwide. A group of judges in Germany partially dismissed the validity of the European Central Bank’s quantitative easing program. In a ruling 7-1 they said it partially violates the constitution and the ECB decision is not valid in Germany as it is not supported by the European Union treaty. Strangely though they ruled to allow ECB to carry on.

Confused? In reaction the euro moved down against the US dollar trading below 1.08 at the time of writing. European Commission released its economic forecast predicting the euro area GDP will fall by 7.7% this year.

Gold prices were relatively stable swinging $15-$20 each side of $1700 mark. A stronger US dollar kept the precious metal under pressure.

The US Crude prices rallied sharply this week from a low of $18.05 per barrel to around $26.00 on Thursday afternoon as investors expected oil demand to pick up following the gradual opening of the economy. The Department of Energy released its inventories data which showed a less than expected build 4.59 million barrels vs 8.8 million barrels estimates.