Weekly Market Outlook
A few economic data releases and official events deserve attention this week. The first one is the RBA interest rate decision scheduled for Tuesday. On the next day, a whole string of services PMIs are going to shed more light on the current economic situation in Europe. Markets will be closely watching the ECB meeting later in the day to see if any new monetary measures are being considered by the central bank’s members. We close the week on Friday with the US non-farm payrolls change and the unemployment rate report, with expectations set for further millions of job losses and unemployment skyrocketing to 20%.
Reserve Bank of Australia Interest Rate Decision (Tuesday)
The RBA is unlikely to take any new measures, with economic lockdowns being gradually lifted. The Australian government has meanwhile announced the “JobMaker”, a new five-year programme designed to help the labor market which has taken a heavy hit from the coronavirus-induced shock to the economy. The April report showed the country’s unemployment rate touching a 5-year high of 6.2%, with 600,000 jobs lost just for the month alone.
With Australia’s main rate at a record low of 0.25%, the prospect of negative interest rates has been a topic of discussion among the members of the central bank too. In his most recent speech, however, governor Philip Lowe appeared to rule out this scenario. This does not necessarily imply that the RBA will not resort to further quantitative easing though.
Global May Services PMIs (Wednesday)
Following the sequence of record lows recorded in April’s services purchasing manager index figures: 31.4, 29.4 and 27.8 for Germany, France and the UK, respectively, many expect to see a rebound in economic activity in May. This was implied in the flash PMI numbers of the three countries last week too. In spite of that, markets are not expecting a miracle, as the data from a few days ago was still bad and well below the 50 threshold.
The situation in Italy and Spain still causes anxiety. Last month both PMIs logged record lows of 10.8 and 7.1, respectively. Both countries are heavily reliant on their tourism, while tourists still stay away and are likely to remain reluctant about travelling for some more time. With this in mind, it is to be anticipated that Italian and Spanish services PMIs are off to a slow and painful recovery.
ECB Rate Meeting (Wednesday)
The German constitutional court ruling to urge the ECB to justify its 2015 quantitative easing programme caused a negative market reaction on European debt markets, and the euro suffered a period of weakness last month. Senior monetary policy-makers disregarded the judgement and once again promised to do whatever it takes to support the European economy. In spite of that, the court decision raised questions about the new PEPP programme’s legitimacy.
Another headline which received serious publicity was the announcement of the €500 billion European recovery fund, backed by Angela Merkel and Emmanuel Macron. The news had a positive impact on European markets and on the euro itself, which broke out through the psychological 1.10 resistance and touched levels last seen in March. It should be kept in mind though that the European recovery fund is still work in progress, and that the ECB has to make a lot more efforts to persuade markets that it has much more it can do within its mandate, should the situation call for further action.
US April Non-Farm Payrolls and Unemployment Rate (Friday)
The April NFP report did not do more than just confirm that a record number of Americans lost their jobs. The final 20.5 million figure even came slightly below expectations. The number of jobless people has continued mounting since then, surpassing the 40 million level. Friday’s report is expected to yield another 7 million jobs lost, which is not anywhere near the April reading. The ADP payrolls is expected to add another 9 million to the total count, which implies that job losses in the last couple of months would climb to over 50 million, thus pushing the unemployment rate to 20%.