Weekly Market Outlook
This week is rich in economic data releases and key top-level meetings. We kick off with the German factory orders and industrial production. The Reserve Bank of Australia meets on Tuesday to decide on its next monetary steps hoping to avoid the worst outcome for the country’s economy. The Fed minutes are keenly awaited by investors who will try to judge to what extent policy makers are on the same page concerning the response to the economic derailment caused by the coronavirus pandemic. On Thursday, the UK is releasing a number of important pieces of data, including: GDP, manufacturing and industrial production, which will shed light into the current state of the economy. We close the week with the OPEC+ meeting. One of the most significant events for the next five days, it promises to determine the next major move for crude oil and for the US shale industry too.
German Factory Orders and Industrial Production
Due consecutively on Monday and Tuesday, the factory orders and the industrial production figures, will show how the biggest European economy is doing amid the material slowdown resulting from the coronavirus. Investors have recently seen big ups and downs in these indicators, with the February releases showing a serious jump of 5.5% in factory orders and a 3% rise in industrial production. Considering that Germany is among the leading exporters of China and provided that the latter has been in a complete lockdown in February and some part of March, we expect this momentum to be grinded to a halt. Aggravating the situation further, in March the COVID-19 completely overwhelmed the entire Europe. So, prepare for some really ugly readings!
RBA Interest Rate Decision
The Reserve Bank of Australia has recently cut interest rates to 0.25% and has resorted to quantitative easing measures last month in a bid to ease tightness in credit markets, thus joining a long list of central banks around the globe. The RBA has also announced fresh steps to aid businesses and support the fiscal measures of the Australian government. The meeting of the Australian central bankers will show the institution’s readiness to go further with its easing measures, as well as to keep rates low for a longer period of time.
Looking back into the March developments, the US Federal Reserve caught many by surprise with the timing and pace of its actions. To begin with, many expected the central bank to cut rates at its 18 March meeting in order to give an answer to growing concerns about the economic slowdown stemming from the raging coronavirus across Asia and Europe. The Fed, however, decided to not wait until the second half of the month and slashed interest rates by 50-basis points on 3 March. At this point, investors and analysts alike expressed their concerns that the institution acted prematurely.
The Fed did not wait long until it decided to act again, this time three days before the meeting scheduled for 18 March. The Federal reserve dramatically decreased rates by 100-basis points and restarted its quantitative easing programme. The minutes preceding this emergency meeting, due to be released on Wednesday, will provide interesting insight into the comments and perceptions of voting members, provided that the decision was not unanimous.
Crude oil has seen some wild swings last week, as the collapsing global demand meets the brutal price war between Saudi Arabia and Russia, resulting in a market flooded by hundreds of millions of barrels of abundant supply. President Trump’s comments last week that the Saudis and the Russians were ready to once again sit on the table and arrange a production cut by 10 million barrels per day were enough for the black gold to rally strongly from the 18-year lows it had been previously trading at. Trump’s words are also reflective of the sharp pain US shale producers are feeling, with breakeven prices for the industry around $50. The OPEC+ meeting was initially due to take place on Monday but was then postponed for Thursday. The group is planning to discuss an oil production cut by 10 million barrels per day, which equals about 10% of global output. A possible deal could bring some more upside on this market. Even in this case, however, crude is not expected to keep up the gains for long, with demand currently close to zero.
Despite the fact that there was a pickup in consumer spending in January, it was evident that the UK economy was starting to cool down at the end of 2019. Given the fact that the shutdowns hit the country in mid-March, Thursday’s February GDP might be one of the last good numbers the UK sees for some time.
UK Manufacturing and Industrial Production
The manufacturing and the industry were the sectors that did better compared to others towards the end of last year, solely due to the Brexit preparations taking place in the face of a fast approaching 31 January deadline. The February figures coming out on Thursday are not expected to be great, as the UK starts to feel the consequences of the events in Europe, where the fast spread of the COVID-19 causes serious economic woes.