Weekly Market Outlook
The economic calendar for this week includes some key economic figures and events featuring leading countries. We start on Tuesday, with the EU GDP for the first quarter and Germany’s trade balance for April. Later in the day, markets will brace for the OPEC+ meeting, which will determine where the price of oil is heading from here. The Federal Reserve’s meeting on Wednesday is not likely to bring any interest rate changes. What is more important for markets in this context is whether policy makers will show determination to act in order to change the current flatness of the yield curve. We are closing the week on Friday, with the UK reporting some key figures for its economy.
EU Q1 GDP (Tuesday)
The most recent revision showed the European Union’s GDP shrinking with 3.8% in the first quarter. We could possibly get a negative surprise here, provided the fact that the economies of France, Italy and Spain contracted with more than 5% each in the observed period.
Germany April Trade Balance (Tuesday)
The situation on this front is expected to be similar to the one observed in March, which saw sharp declines in exports (-11.7%) and imports (-5%). With business activity having been almost entirely muted in April, due to the lockdown of the country, it is highly probable that we would witness persisting weakness. Even with the poor numbers in March, the German economy contracted 2.2% only. For this reason, it is reasonable to expect that the damage will be much worse in the second quarter, with trade numbers reflecting the collapse in demand on the Old continent.
OPEC+ Meeting (Tuesday)
The OPEC+ deal for the cutting of almost 10 million barrels a day starting from 1 May was met with skepticism at the beginning. Previous episodes of broken promises from some of the members made markets feel that the bargain would not be effective, which resulted in the US West Texas Intermediate oil futures hitting a price of -$37. It was soon evident that some of the smaller members were not fulfilling the promised cuts. This, however, did not stop crude output in May from falling to its lowest level since 2002, with the biggest reductions coming from Saudi Arabia. This helped oil prices recover sharply, with WTI currently trading at levels around $39 and Brent around $42.
On the meeting this Tuesday, analysts expect some irritation among key members to be seen as a result of the non-compliance to the agreed parameters from countries like Nigeria and Iraq. With current cuts set to last for another month, growing anger from Saudi and Russian sides could make a possible extension of the deal hard to achieve. If that turns out to be the case, it is likely that markets will see sharp oil losses.
US Fed Meeting (Wednesday)
The latest Federal Reserve meeting is not likely to bring any changes in terms of interest-rate policy. Despite some speculation about the possibility for the institution to resort to negative rates, Jerome Powel and other top figures in the central bank have verbally pushed back on this prospect. Instead, the institution is more inclined towards trying to control the slope of the yield curve, as its current flatness is negatively affecting banks’ balance sheets. From this perspective, keeping short-term rates down, while allowing longer-term ones to rise would benefit credit institutions. The health of the banking system has caused concern among policy makers lately. If it turns out that the current economic slump is prolonged, even more companies could suffer financial problems in the next months, which would adversely affect the business of US banks.
UK Economy April Figures (Friday)
The UK is reporting some important pieces of economic data this week. Expectations are not set high, given the ugly numbers we saw for March. Analysts see manufacturing declining 15.5% and industrial production declining 13.9% in April. Even more pain is likely to be brought upon by the GDP number for last month, where decline is estimated to be -18%, from -5.8% in March.