Weekly Market Wrap 11-15/May/2020

Marius Paun | London, UK | Senior dealer | Friday 15th May 2020

World’s economic data continues to disappoint

The US non-farm payrolls data for April showed the economy shed 20.5 million jobs, slightly better than expected (loss of 22 million jobs) with unemployment rate rising to 14.7. Surprisingly the stock markets performed well closing higher on the session possibly on the Fed reassurance they will provide support no matter what. Another booster was the fact that 18 million jobs seekers consider their situation as ‘temporary’.

On Friday 15th, the US retail sales figures were released indicating a record plunge of 16.4% for April far worse than the prediction for ‘only’ a 12.3% drop. Clothing stores took the biggest hit, an eyewatering -78.8% followed by electronics and appliances -60.6% and furniture down 58.7%. The grocery was the only gainer.

We also saw the US inflation numbers coming out with CPI posting a drop 0.8% in April, the largest slump since 2008 but in line with market consensus. Meanwhile, the Fed Chair Jerome Powell reiterated his dislike of negative interest rates but said ‘additional policy measures may be needed to avoid lasting damage’.

People’s Bank of China was in a supportive mode as well saying they will use ‘more powerful policies to help growth. CPI for April came in at 3.3% year on year with PPI -3.1%. As geopolitical trade tensions appear to make a comeback, China imposed an import ban on 4 Australian abbatoirs sending the Aussie dollar lower.

In the UK, Prime Minister Boris Johnson announced that some of the restrictions will be lifted with effect from Wednesday. However, a large part of the media, as well as the opposition, blamed the government about clarity in implementing those measures. Elsewhere, the Bank of England governor Andrew Bailey signalled the central bank is likely to increase government bond purchases to alleviate ‘a very sharp move into recession’. He mirrored Jerome Powell in the US discarding negative rates…. for now? hinted Goldman Sachs. At the same time, the preliminary UK GDP data for the first quarter showed a drop of 2% versus expectations for a 2.6% decline.

After last week’s alarm bells, politicians and central bankers in Europe are pushing for a mend. On one hand, European Central Bank member Olli Rehn said German court verdict (see the previous report) does not instantly affect ECB policy. On the other hand, German constitutional court president said ECB decisions are good for Europe and strengthened the rule of law……How peaceful!!!

After dropping to a low of 1691.9 this week, Gold prices enjoyed a nice rally trading around $1746 on Friday afternoon not far from a seven-year high of $1747.13 touched on April 14th. Interestingly enough it has done that despite the disappointing US retail sales data which sent the stock markets lower. Is it too early to think about decoupling and the precious metal re-establishing its safe have status? Remains to be seen.

The US oil prices continued their strong rebound breaking above $29.00 per barrel – up 50% in May, following a decline in crude inventories and signs that Saudi Arabia may comply with its pledged production cuts. Last week news that Saudi Arabia raised its official oil selling prices brought some additional support to the current rally.