Friday, May 29, 2020

Week ahead: focus shifts to ECB, BoC, NFP, and PMIs

NBHM Research Team

Global stocks rallied last week as investors remained optimistic about the reopening of global economies following the COVID-19 lockdowns and the resulting uptick in business activity. The dollar index remained subdued, gold attempted to retest the YTD high, and Bitcoin found significant resistance below $10,000.

The biggest news came from Europe, where the European Commission unveiled an $826 billion recovery fund. The grants will go to all eurozone countries to help them recover from the pandemic with a greater proportion going to the most-affected countries like Italy and Spain.

Other major news was on the brewing tensions between the US and China. Trump has accused China of not warning other countries early enough about the virus. At the same time, a decision by China to increase its presence in Hong Kong has made the situation worse. Over the next few days, market participants will follow the developments between the two countries closely.

Gold: The price of gold was relatively subdued as bulls attempted to retest the YTD high of $1765. The price could make significant moves this week because of the vast amount of dollar-related data due and the rising geopolitical tensions. Some of the key numbers that are likely to move gold will be the Chinese manufacturing and services PMI data, the US nonfarm payrolls data, and the European Central Bank rates decision. The daily chart below shows that the gold price is forming an ascending triangle on the daily chart.

NBHM weekly analysis

US dollar: The US dollar index was relatively subdued last week as more countries continued to reopen their economies. The index also came under pressure as the euro gained following the announcement of the European Commission stimulus. This week, the biggest mover of the USD will be the nonfarm payrolls data that will be released on Friday. Analysts polled by Reuters expect the unemployment rate to surge to more than 19%. They also expect the NFP to show that more than 7 million Americans lost their jobs. Also, wage growth is expected to decline from the previous 7.9% to 3.3%. Other important data likely to impact the dollar this week are the US trade numbers and ISM manufacturing and non-manufacturing PMI.

Euro: The euro rose in the previous week as the market reacted to the $528 billion proposal by the European Commission. The market also reacted to several positive data from the eurozone. This week, the biggest mover will be the European Central Bank (ECB) interest rate decision on Thursday. Analysts don’t expect the bank to make any changes. Rates are likely to remain unchanged and the bank is expected to commit to buying unlimited assets in a bid to support the economy. The euro will also react to the manufacturing and service PMI data from the eurozone, retail sales, and the unemployment rate from Germany.

Canadian dollar: The Canadian dollar gained against the US dollar last week. The currency has been boosted by the falling number of new infections and steady oil prices. The CAD is likely to see some action this week due to a busy economic calendar. Later today the manufacturing and services PMI will be released, labour productivity data is due tomorrow, trade numbers on Thursday and the employment numbers will come on Friday. Most importantly, the Bank of Canada will deliver its interest rate decision on Wednesday. Analysts expect the bank to leave rates unchanged at 0.25% since the number of COVID-19 cases is falling and oil prices are relatively stable.

Australian dollar: The upward momentum made by the Australian dollar waned last week mostly because of the tensions between the US and China. This week, the Aussie will react to the Chinese and Australian manufacturing and services PMIs. It will also react to the RBA interest rate decision that will be made tomorrow, the final reading of Q1 GDP that will come on Wednesday, and the April retail sales numbers. The chart below shows the recent momentum of the AUD/USD pair and that it is aiming for the 0.7000 resistance level.

NBHM weekly analysis

S&P500: The S&P500 index continued rallying last week as investors remained optimistic about the US economy. The momentum ended on Thursday when the Chinese rubberstamp parliament, the National People’s Congress, voted on the Hong Kong security bill. This week, the tensions between the two countries will be in the spotlight. Also, the market will be focusing on several companies that will release their quarterly earnings. Some of the notable ones include Nike, Broadcom, Gap, Brown Forman, and Zoom Communications.

Japanese yen: The Japanese yen was little changed last week even as risks on trade increased. The currency also reacted to positive CPI data from Tokyo and the end of the state of emergency. This week, the yen will react to the Japanese manufacturing and services PMI data, capital spending in the first quarter, household spending, and the leading index.

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