Weekly Market Outlook

The week ahead will bring both high-priority economic data releases and key Q1 earnings figures of bellwether companies. We are opening and closing the week with China releasing its trade balance on Tuesday and GDP figures on Friday. The systemically important US banks are reporting their earnings for the first quarter of the year on Tuesday and Wednesday. The Bank of Canada Interest rate meeting is an event that will also be followed carefully by the markets right in the middle of the week. The US jobless claims will give investors one more missing part of the April jobs report puzzle. The mining giant, Rio Tinto, is scheduled to deliver its Q1 results on Thursday.

Chinese Trade Balance (Tuesday)

China is due to release its March trade balance on Tuesday, and the numbers would probably be far from great. As a result of the country’s lock-down over New Year and the following weeks, February exports nose-dived by a hefty 17.2%. The imports for the same period came out slightly better, dropping with 4%, compared to expectations of a hardcore 15% fall. This outperformance can be attributed to a 14.2% jump in the soybeans imports for the first couple of months of 2020.

March saw a rebound in PMI figures, as factories started to reopen. This is likely to be reflected in the March trade numbers, though improvements would solely stem from domestic rather than international factors. It should be kept in mind that as Chinese economy starts to pick up, other regions are currently going through what the country experienced in February. For this reason, the demand for Chinese exports is more than likely to remain on the weak side, at least for a couple of months.

US Banks Q1 Earnings (Tuesday and Wednesday)

Investors are keenly awaiting the first quarter results of JPMorgan, Citigroup, Morgan Stanley and Wells Fargo. In recent quarters, US banks have pretty often beaten expectations, with JPMorgan Chase being the absolute leader, having achieved record revenue and profit in consecutive quarters over the past year.

Since the situation has materially changed around the globe, this week’s banking numbers are anticipated to be at the lower end. Goldman Sachs could outperform its rivals, as a result of its investment banking margins tending to be better and due to the fact that it lacks retail exposure. Wells Fargo is likely to be more vulnerable after a number of legal challenges resulted in its underperformance in Q4. The sharp fall of the US economic activity in the last month has a high probability of affecting the bank’s figures in a seriously adverse way, given its largely domestic focus.

Bank of Canada Meeting (Wednesday)

At the end of March, the Bank of Canada shocked market participants by surprisingly cutting rates for the third time in a matter of weeks, that time to a record 0.25% low. Central bankers took these drastic measures in a bid to protect the economy from the strong negative impacts of the coronavirus and from the heavy fall of crude oil’s price. A dramatic rise in jobless claims to over a million forced the Bank of Canada, like a number of other central banks, to resort to quantitative easing: the institution pledged to buy up to CAD 5 billion worth of government securities on a weekly basis.

On Wednesday, the Bank of Canada is set to repeat its determination to support the economy. In this respect, governor Poloz might suggest further easing measures or at least express readiness to resort to such. Although negative rates were not ruled out at the last press conference, it is very unlikely that the institution will move in this direction anytime soon.

US Jobless Claims (Thursday)

After three multi-million jobless claims weekly counts in a row, forecasts for the Thursday reading are for another big number. With this in mind, the April jobs report would probably easily beat last month’s 701,000. This would likely lead to calls for further fiscal measures to shield the economy and prevent the unemployment rate from skyrocketing.

Rio Tinto Q1 Earnings (Thursday)

The last update dates back to February and showed the company’s net profit declining by 41% as a result of writing down the value of assets in Australia and Mongolia. With these reductions, profit was at $8 billion, while before the spin-offs the latter was $18 billion. The Q1 results are expected to be seriously affected by the shutdown of the Chinese economy in February, which preceded the almost entire stopping of the global business activity in March. The anticipated serious decline in Rio Tinto’s revenue in the first quarter of the year could potentially impact the dividend policy of the company, at least for 2020.

China Q1 GDP (Friday)

We are closing the week with the Chinese gross domestic product figure. The latter is set to show a sharp contraction in the country’s economic activity in the first quarter. In this sense, the government’s ambitions of hitting its 6% GDP target look to a large extent irrelevant and disconnected from reality.