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What awaits us this week after the huge fluctuation in the markets last week?

What awaits us this week after the huge fluctuation in the markets last week?

14 Jun 2020 04:22 PM

Last week major stock indexes collapsed causing the largest drop in the markets since mid-March 2020.

The market volatility was driven by panic in the markets after the US Federal Reserve announced its somber forecast of the US’s economic recovery post the Covid-19 pandemic. The Fed indicated that the US economy may contract by 6.5% this year and the economic recovery from the Covid-19 pandemic-induced recession would be a slow one, with interest rates remaining very low until 2022, while maintaining its pro-economic policies.

The global acceleration of Covid-19 has contributed to the spreading concern about the prospects for economic recovery and the opening-up of the global economy. It seems that the world will not return to its pre-pandemic state soon, especially since a coronavirus vaccine is not expected as soon as many had hoped.

Gold prices

During the week, the gold price increased following stimulus monetary policies announced by central banks around the world. Policies with asset purchase programs and lending programs for companies and individuals will inject cash into the economy, which threatens to decrease the purchasing power of cash.

Oil prices

Oil prices dropped due to the emergence of data showing that the US inventory rose to a record level after the US Energy Information Administration announced stock had increased by 5.7 million barrels, which dashed hopes that global demand had recovered.

Overview of last week

The huge fluctuations in the financial markets last week lead to fundamental changes in traders' expectations regarding the amount of economic recovery expected during the second half of this year. The US Federal Reserve's statements were the straw that broke the camel's back - it showed how bad the American economic situation is, and the negative impact it will have on the global economy.

Key economic data to watch out for this week

Tuesday, 16th June – US and China - Industrial production and retail sales data

The industrial production and retail sales data announced by both the US and China will help gauge manufacturing and consumer trends as the world’s two largest economies eased lockdowns.

  • Jobs data will be announced in the US, China and the UK
  • Inflation numbers will be updated in the Eurozone, Japan and UK

It’s also a busy week for central banks, with markets looking for views from policymakers on expected recovery speeds and whether any new tools might be deployed to help ease downturns. Policy decisions are due in the UK, Japan and other emerging countries.

Will this week’s economic data show the worst of the downturn has passed?

Following the surprise rise of the non-farm payroll in May, this week’s economic data centres on jobless claims, retail sales and industrial production for additional signs that the worst of the downturn is behind us, barring a possible second wave of infections. Meanwhile, other US data to be released this week includes the current account, housing starts, business inventories, surveys from the Empire State and Philly Fed, plus weekly jobless claims.

Industrial production and retail sales data for the US updates for May will be eagerly awaited by the markets for confirmation that the worst of the economic downturn from the Covid-19 pandemic has passed. Markit PMI surveys, which fell into contraction in February 2020, look to have bottomed out in April, rising in both manufacturing and services in May.

Watch out for data from China, Bank of Japan monetary policy meeting and trade numbers  

In Asia, on Monday, 15 June, China watchers will keenly anticipate May data updates to fixed asset investment, industrial output and retail sales for signs of further progress in recovery. The latest PMI surveys for China have signalled a rise in overall business for the first time since January.

Other fresh trade data from the Asia Pacific will also draw scrutiny to help gauge global trade as trade performance readings are likely to show slumping sales amid weakness in global demand.

Two sets of Monetary Policy meeting minutes will be released this week as the Bank of Japan will conclude its two-day policy meeting on Tuesday, 16 June. It is not anticipated to make any changes to its key policy tools.

Bank of England is widely tipped to increase its asset purchasing again in June

In Britain, markets expect the Bank of England to announce more asset purchases on Thursday, 18 June and will look for clues that show policymakers’ appetite for negative interest rates. The expectation for expansion in asset purchasing program next week could be in place to meet the Treasury’s aggressive borrowing plans and support the economy. The Monetary Policy Committee meeting is preceded by updates to inflation and labour market data and followed by retail sales numbers.

Eurozone

It will be a relatively quiet week for Eurozone economics. Although the final inflation, construction and trade data will release, it will probably not affect the markets.

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