Market Outlook: Focus turns to Central Banks with decisions and data due


AxiTrader’s Global Chief Market Strategist Stephen Innes takes a very analytical view of this week’s markets

european markets

By Stephen Innes, Global Chief Market Strategist, AxiTrader

Week Ahead
As we veer towards May, this week’s focus will turn to central banks again, with the Fed, ECB and BoJ all announcing their latest decisions on rates.

As well, and for key corporate guidance, earnings season will be closely monitored over the week ahead, with 173 of the S&P 500 companies reporting, including several big names. 

And on the data side, the first peek at Q1 GDP for the US and the Euro Area will provide investors the dreaded reality check to the extent of the initial drops in output, while PMI releases and the weekly US jobless claims will be carefully analyzed for more recent developments as the data becomes more time accurate. 

The Federal Reserve 

This event is expected to be little more than a status report while providing an update on the Fed’s actions to date and the Committee’s evolving views about the economic outlook.

The European Central Bank

The ECB has turned on the taps, similar to the Fed, albeit with a more lukewarm reception to its €750bn Pandemic Emergency Purchase Programme, but there’s also been temporary collateral easing measures and moves to mitigate the impact of rating downgrades on collateral availability. However, the landscape remains extremely thorny, as evidenced by last week’s dispiriting EU composite PMI for April falling to a record low of 13.5, while sovereign bond spreads have continued to widen. So, there could still be a surprise or two from the ECB. 

The Bank of Japan 

The BoJ meeting could be the most interesting one of them all. It’s highly likely the bank will consider additional easing measures next week, with the most bandied around idea for them to increase its purchasing of commercial paper and corporate bonds.

Dueling GDPs 

The first look at Q1 GDP readings will be closely watched, with the US reporting on Wednesday and the Euro Area following on Thursday. Economists are widely expecting contractions, though given the lockdowns only came into force from March, with the early part of the quarter unaffected, they will not display the full extent of the damage until the next quarter’s releases.

The PMIs: China the focus

The flash PMIs for April were worse than the March numbers, and even more dreary than expected with composite PMIs falling to record lows across several countries. However, on Thursday we’ll get the composite manufacturing and nonmanufacturing PMIs from China, which will give us an indication of how their economy has recovered as lockdown measures have been eased, and what that could mean for the rest of the world relaxing social restriction measures. 

Earnings Season

We move into second gear with 173 companies in the S&P 500 reporting, along with a further 95 in the STOXX 600. Of the 120 S&P 500 companies that have reported so far, 67% have to say a positive surprise on earnings, and 65% have reported a positive surprise on sales. 

Looking at the highlights, we can look forward to the following companies reporting this week:

  • Monday: Adidas
  • Tuesday: Alphabet, Novartis, Merck & Co., Pfizer, PepsiCo, HSBC, Starbucks, BP, Caterpillar, UBS, Santander, Ford.
  • Wednesday: Microsoft, Facebook, Mastercard, AstraZeneca, American Tower, GlaxoSmithKline, Boeing, Volkswagen, General Electric, Daimler, Barclays, Samsung, Tesla.
  • Thursday: Apple, Amazon, Visa, Comcast, McDonald’s, Amgen, Royal Dutch Shell, Gilead Sciences, Lloyds Banking Group, Nokia and Twitter.
  • Friday: ExxonMobil, Chevron, Charter Communications, AbbVie, Honeywell International, RBS.

Oil market

There’s been a massive drop in open interest in the June 20 NYMEX. This is very much a result of the USO ETF being told by the CME to reduce the front-month delivery risk. This policy shift is to avoid another technical break down, and it makes sense as June contract night but un-deliverable with Cushing storage probably full.

If you’re looking to express a medium-term bullish view on oil this week, the proxies would be a better bet; CAD, NOK, or even the AUD – although the A$ is not typically described as a Petrol currency, it exhibits a powerful beta to oil risk.

We’re entering a point of infection as June contract settlement looms. And it could devolve into the silly season as markets are set to test global storage capacity in the next 3-4 weeks. This will likely create substantial volatility and possibly more spikes to the downside until supply finally equals demand; with nowhere to store the oil, supply has no other option but to be shut-ins.

But I’d caution on being overly bearish as risk management protocols suggest more rolls out of June into July could happen next week, meaning less settlement risk in June. 

With that in mind, within around 4-8 weeks there could be a significant change in the situation as the OPEC+ cuts plus a combination of additional voluntary, forced and compensated shut-in gradually brings the market back to a state of normalcy. 

Next week’s view (Brent only)

Brent has recovered from lows but remains about 23% below last Friday’s close after a week that showed just how bad things could get for oil. 

Deeper cuts are needed to support oil prices, not because they fix the oversupply expected in 2Q but because they quicken the rebalancing expected in 3Q. This could provide a buffer as border lockdowns and travel restrictions would like to be the last to reopen after governments are convinced the curve has flattened, and the risk of secondary spread has receded.

It’ll be an uncertain time for the oil market, with data pointing toward accelerating inventory builds and storage moving closer to capacity.

Gold Markets 

A couple of critical technical supports were breached last week – $1603 XAUEUR and $1725 XAUUSD – as the current leg higher came on the back of the gloomy EU and US data, which is bound to get worse. And the bounce was exacerbated by the situation in Europe; the talk of potential further government spending under an EU budget seems to be driving XAUEUR back to the all-time highs around 1600. 

As far as the primary benchmark XAUUSD, all the bullish reasons to stay long gold in the medium term still apply – notably the considerable amount of money being printed by central banks and fiscal spending by governments to offset the economic impact of the coronavirus outbreak. Temporary deflationary concerns like the one triggered by the selloff in oil are one of the few things to worry about apart from the massive positioning as the markets merrily go along their way to $1800 on a path paved with gold bricks.

LIBOR is falling, signaling USD funding pressure is dropping, so is it time for the dollar to finally give way?

Currency Markets 

The Australian Dollar

The Aussie will catch wings. Aussie currency has been on something of a tear recently, coming at the top end of the G-10 spectrum. There are a few things at work here. 

With evidence that China is bottoming out, it would be reasonable to expect AUD to be one of the biggest beneficiaries. The meek level of iron ore inventories at Chinese ports has raised some hope that China might soon start re-stocking. Meanwhile, in Australia, recent changes to government rules allow workers to take funds out of their pension pots. There might, therefore, soon be something of repatriation of overseas cash into AUD.

The Euro 

There’s a good case for the Euro to pop higher; Events are mostly out of the way, they were not Euro-supportive and yet EURUSD is holding in very well, suggesting the EU outcome was in the price.

Friday’s LIBOR fixing might have flown under the radar for some (0.88 from 0.99 the day before and 1.02 the day before that). The peak in LIBOR in 2008 was a signal that panic USD buying was done, and a few weeks later the USD fell precipitously. A good chunk of the USD buying since March has been of the global USD shortage variety and tumbling.

LIBOR is yet another signal that the shortage is dissipating.

Follow me on Twitter

I’m providing fundamental real-time analysis and an insider edge you won’t find elsewhere via Twitter: @steveinnes123

Find out more about AxiTrader here

The subject matter and the content of this article are solely the views of the author. FinanceFeeds does not bear any legal responsibility for the content of this article and they do not reflect the viewpoint of FinanceFeeds or its editorial staff.


Read this next

Digital Assets

Japan advances digital yen trial as PoC concluded

The Bank of Japan (BOJ) today published the findings of the second phase of its digital yen’s proof-of-concept (PoC) experiment, joining a growing number of countries seeking to catch up to front-runner China.

Digital Assets

Russia scraps proposal for government-backed crypto exchange

Russia has decided to abandon its previous plans of creating a national cryptocurrency exchange and will instead focus on developing regulations that would enable private companies to establish such exchanges.


CFI Financial onboards Elena Kupriyanova as head of marketing

CFI Financial Group has named Elena Kupriyanova as its new global head of marketing in a bid to bolster its marketing efforts and enhance its market presence.

Retail FX

Trading 212 revenue tops 2021, but bottom line disappoints

Per its filing with the UK companies house, Trading 212 UK said revenue from online trading rose to £98.7 million in the fiscal year ending December 31, 2022, up five percent compared to £94 million a year earlier.

Digital Assets

Binance to cease services for Japanese users after local launch

Binance is poised to reenter the Japanese market through the launch of a fully compliant subsidiary in the country. This development comes a few months after Binance made a fresh bid to return to the lucrative market in November 2022 with the acquisition of Japanese-registered crypto exchange service provider Sakura Exchange BitCoin (SEBC).

Digital Assets

Huobi Hong Kong offers crypto trading for retail clients

Huobi HK, a subsidiary of digital asset exchange Huobi Global, has made an announcement stating that it is now providing crypto spot trading services to both retail and institutional clients in Hong Kong.

Digital Assets

Bybit’s Strategic Leap: Navigating the Cryptocurrency Landscape in Kazakhstan

In a significant leap forward, Bybit, the globally recognized cryptocurrency exchange, has received preliminary approval from the Astana Financial Services Authority (AFSA), marking an important milestone in its strategic expansion into Kazakhstan and the wider Commonwealth of Independent States (CIS) region.


Bitcoin 2023: Unlimit’s Jack Jia discusses fiat on/off ramps for crypto business

Unlimit’s expansion into the crypto space aims to bridge the gap between traditional banking networks and the rapidly evolving crypto world, facilitating seamless conversions into various digital wallets and enhancing scalability through off-chain solutions.

Digital Assets

European Systemic Risk Board warns of crypto conglomerates, leverage, DeFi, staking, lending

The report considers policy options to address risks arising from crypto conglomerates, crypto-based leverage, novel operational challenges, DeFi and crypto staking and lending.