US President Donald Trump was out at full strength this week in his attempt to blame China for the spread of coronavirus. He also touted a strong US dollar! As economic data around the world continues to be dismal, many countries and central banks also continue to say that they are willing to do more, if necessary, with some saying they are discussing negative interest rates. However, the US Fed is not one of those central banks. The Brexit talks continued last week, but both sides still seem far apart. Saudi Arabia voluntarily donated another 1 million bd, while OPEC lowered oil demand. This week, the focus will continue to be on the reopening of countries and US states. So far it’s been “steadily as she goes”!
President Trump is in “Blame Game” mode and he blames China for the spread of coronavirus. As a result, Trump said last week that the US-China trade deal would not be renegotiated despite the ongoing coronavirus, and then announced that federal funds for retirement would no longer be invested in Chinese equities. On Thursday, Trump continued his rhetoric saying: “I am very disappointed with China. I’ll tell you right now. “(He also said it’s a good time to have a strong US dollar.) The last act for the Trump administration on Friday was to change an export rule to strategically target Huawie’s acquisition of US semiconductors. The Chinese company has been consistently accused by the United States of stealing American technology. This game seems to be just getting started. What will be China’s retaliation against the United States? Traders need to see how this plays out and be tired of having a negative impact on stocks and the US dollar.
With the ongoing coronavirus pandemic, economic data remains bleak. Eg. Australia lost nearly 600,000 jobs in April and US retail sales fell 16.6% in April. As a result, many central banks are considering negative interest rates (for those who have not already done so). RBNZ joined last week and said they could consider it together with BOE. However, Fed speakers were unified this week, suggesting they are not considering negative rates. The futures curve with fed funds began pricing in negative prices in 2021 last week. This needs to be monitored. A negative Fed fund rate reduces earnings for banks. Fed chairman Powell speaks twice this week and will be on TV Sunday night. If stocks get lower, traders need to listen to hear if the Fed’s language is starting to change. Either way, more relief is on the way as many countries continue to adopt new fiscal policies aimed at keeping the economy afloat until the coronavirus is under control.
Brexit negotiations stopped once again as dealers in the UK and the EU joined last week. However, both sides appear to be quiet. Boris Johnson consistently said he is ready to leave without a deal, while EU Barnier said after last week’s meetings he is not optimistic about the Brexit negotiations. Lectures will start to heat up again as we enter the summer, which can affect both pounds and euros.
With crude oil futures expiring next week, many traders are wondering if oil can trade back below zero. However, unlike previous contracts, volume and open interest have already rolled into the July contract. Dealers rolled earlier than usual to prevent them from sticking to the June contract for long-term expiration. Therefore, the July contract is already the more liquid and there will be less to roll as we get closer to the end. That said, the June contract has risen almost another 20% this week to nearly $ 29.50. Although OPEC has cut its projected 2020 demand, Saudi Arabia has already voluntarily cut production by 1 million bpd. The focus is now on the June OPEC meeting to determine if supply can be further reduced.
Countries around the world and US states are starting to reopen. Germany eases the restrictions and allows stores to reopen, including restaurants, gyms and bars. However, there will be guidelines that include social distance. Germany also said they will loosen quarantine restrictions for EU and UK travelers. In the United States, each state can reopen at its discretion, as each state has its own level of virus severity. Eg. In California, the LA County Home Room Order has been extended for 3 months, while the Georgia economy has already reopened. This slow and steady pace has not yet yielded significant increases in the percentage of those who have the virus, but it may still be too early to tell. As each country and state begins to open, everyone must be aware of possible outbreaks.
Although the earnings season is almost over, there are still some significant earnings reports to watch this week, including BIDU, RYA, WMT, HD, LOW, TGT, MKS, SVT, NVDA, BABA and PDD.
As far as financial data is concerned, the biggest pieces of data are PMIs for manufacturing and service due at the end of the week. This will be the first good look at data from May. As April’s data is now the new benchmark to hit, it will be important to see if the data is better or worse than April’s. Other important financial data are as follows:
- US: Fed chairman Powell appears “60 minutes”
- Japan: GDP QoQ (Q1)
- China: House Price Index (APR)
- New Zealand: PPI QoQ (Q1)
- Australia: RBA meeting minutes
- UK: Change in complaint count (APR)
- Germany: ZEW Economic Sentiment Index (MAY)
- United States: House Data (APR)
- USA: Fed chairman and finance minister Mnuchin testified before the Senate
- China: Loan Prime Rate 1Y
- UK: Inflation data
- EU: Final Inflation Rate (APR)
- Canada: Inflation rate
- USA: FOMC protocols
- shout Attitudes
- Australia: Manufacturing and Service PMI Flash (MAY)
- Australia: RBA Gov Lowe speaks
- Japan: trade balance (April)
- UK: Manufacturing and Service PMI Flash (MAY)
- USA: Initial claims without unemployment
- USA: Manufacture and service Flash PMI (MAY)
- US: Existing Home Sales (APR)
- US: Fed Chairman Powell testimony
- New Zealand: retail sales QoQ (Q1)
- Japan: Inflation rate
- UK: Retail
- EU: Manufacturing and service PMI Flash (MAY)
- Canada: Retail
Weekly chart: Daily Spot Gold
Source: Tradingview, FOREX.com
Although stocks continue to be sharpened higher, gold is also moving higher. Many people think of gold as an asset class to protect themselves in a risk-free state. However, the correlation coefficient shows that until this month, the correlation during the coronavirus outbreak has been largely positive for stocks. Last week, precious metals broke out in a 1-month consolidation, creating a pennant formation. The target for a pennant is the length of the flagpole added to the pennant breaking point, which in this case sets the price just above $ 2000. The first resistance is at previous heights in 1800. Then the resistance is the all-time high 1925, which was discontinued in September 2011. The support is back at the peak of the pennant in the vicinity of 1711 and 1692. During this price may fall to 1640.
With a bright financial calendar once again in the week ahead, the focus will continue to be on coronavirus. However, back and forth between China and the United States can steal the headlines from the coronavirus data itself.
Stay alert and always wash your hands. Have a nice week!