Friday, March 27, 2020

Week Ahead: Get Ready for the Worst NFP Data in Recent Memory

NBHM Research Team

The focus amongst traders this week remained on Coronavirus, the disease that is spreading around the world. Confirmed cases continued to soar in Europe and the US while China laid out plans to reopen Hubei province, where the disease started. We also focused on the Federal Reserve, which laid out plans for an open-ended quantitative easing, which means that the Fed will create trillions of dollars. Most importantly, we received the worst jobless claims in US history as more people applied for unemployment insurance.

US dollar: The US dollar declined by almost 4% this week as investors focused on the decision by the Fed to print unlimited dollars. This decision brought back memories of what happened after the 2008/9 financial crisis when the dollar weakened because of the Fed’s quantitative easing program. In the coming week, the biggest dollar-related news could be the nonfarm payrolls data, which will be released on Friday. Economists expect the economy to have lost more than 420k jobs in March. They also expect the manufacturing payrolls to have reduced by more than 3k and the unemployment rate to move from the current 3.5% to 4%. Meanwhile, wages are expected to decline from the previous 0.3% to the current 0.2%.

Crude oil: The price of crude oil struggled to find direction this week as investors worry of supply and demand intersected with hopes of a Trump intervention. The biggest concern in the crude oil market has been about increasing global production and low demand. On supply, the biggest oil producers like Russia and Saudi Arabia are pumping more oil than they did in the past few years. This is happening at a time when demand for oil is falling as many airlines cancel flights and more people stay at home. This week, Mike Pompeo called Mohammed Bin Salman and asked him to stabilize oil prices. He also made public statements directed to Saudi. In the coming week, we will be watching whether Saudi will intervene.

Euro: The euro index rose this week by almost 1%. This rise was partly because of the weaker dollar, which has a substantial weight in the index. This week, the number of confirmed Coronavirus cases and deaths continued to rise. Meanwhile, European governments continued to pledge their support for their economies. In total, countries in the European Union have pledged more than 1 trillion euros in support. We will receive key data from Europe in the coming week. The most important news will be the region’s manufacturing PMI data, which will be released by Markit on Tuesday. Other important news will be the business, industrial, and services sentiment survey data, which will be released on Monday. We will also receive employment data from Germany and the preliminary CPI data from the Eurozone.

Yen: The Japanese yen rose slightly against the USD this week as the number of Coronavirus cases continued to rise. The biggest news from Japan was that the country had agreed to postpone this year’s Olympics to 2021. Meanwhile, the Bank of Japan continued to reassure the markets of its support. In the coming week, we will receive important news and data from Japan and Asia. The biggest news will be the PMI data from China, which will be released by China Logistics and Caixin. Traders will want to see whether manufacturing activity increased in the country. On Tuesday, we will receive the unemployment rate, retail sales and industrial production. On Wednesday, we will receive the Tankan large manufacturers index.

Gold: Gold price rose by more than 8% this week as investors reacted to the quantitative easing plans by the Federal Reserve. Perhaps, traders remembered what happened when the Fed implemented QE. In that time, the dollar index declined while the price of gold soared. Meanwhile, Goldman Sachs sent a note to its clients inviting them to buy gold, with a price target of $1,800. In the coming week, the price of gold will mostly depend on economic data from the US, actions by the Fed, and the overall performance of the market.

S&P500: The S&P500 index rallied this week on a number of good news items such as the Fed decision and the passing of a $2 trillion economic stimulus package passed by senate. Companies will now receive hundreds of billions of dollars from the government. The same will happen to individuals, with adults expected to receive about $1,200. In the coming week, the index could continue to rally as investors turn their attention to when the economy will reopen. The index will also react to the US and global PMI data and the employment numbers from the US.​

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