Weekly Market Outlook
This week’s outlook is rather rich in events. US banks are reporting their results for Q2 in the first three days of the week. China’s trade balance, due Tuesday, is expected to improve slightly. The UK is releasing its GDP figures on the same day, with most analysts not foreseeing a rebound. China will be back into the spotlights on Thursday, reporting its GDP, industrial production and retail sales figures. While retail sales and industrial production are seen climbing, this is not expected to have a substantial positive impact on the gross domestic product, at least for now. Later on in the day, the ECB rate meeting is not likely to yield any serious surprises. Netflix is going to conclude this busy Thursday with its Q2 report. Finally, we are closing the week with the EU summit on the pandemic recovery fund.
China June Trade Balance (Tuesday)
The recovery of the Chinese economy, which has been rather anemic so far, is hoped to gain further traction. Trade flows are seen improving too as a result of both the US and the European economies reopening in the past two months. Imports are expected to dip by -8.7%, a substantial improvement compared to the -16.7% decline recorded in May. Exports are likely to do better with global economic activity on the upside. Analysts, however, are only anticipating modest improvement, provided the fact that the area’s good performance in the last months was mainly due to the export of PPE and other virus-related products.
UK May GDP (Tuesday)
April saw a decline of over 20% for the UK economy. This was merely a surprise with people locked in their homes, transport barely functioning and even animals reported on rural roads. May is expected to bring the much awaited improvement, as restrictions are gradually slackened and business activity is slowly picking up.
US Banks Q2 Results (Monday-Wednesday)
A rather interesting week is coming for US banks which are to report their Q2 numbers. This is to occur following the shutdown of the US economy in April and the global economy grinding to a halt. The recent stress tests conducted by the Federal Reserve have suggested three paths of the imminent recession: V-shaped, W-shaped, or U-shaped. The recession scenarios have led the Fed to capping the dividend which could be paid and to abandoning plans of share buybacks. The attention is on US banks to see if any will set aside more funds in addition to the collective appointment of nearly $25bn as provision for non-performing loans.
China Q2 GDP (Thursday)
The Chinese economy shrinked -9.8% in Q1, dragging the annual GDP deeply underwater too (-6.8%). Since then, not much improvement was seen in retail sales, and import data showed that internal demand continues to be scant. Medical exports contributed to some improvement in the overall situation, which made analysts believe the country is headed toward a V-shaped rebound in the second quarter, with GDP growing by the hefty 9.6%.
Having spent April and May in negative territory, retail sales are anticipated to experience another decline in June. The slight rise in industrial production lately is way below the long-term average. So the forecast of a substantial rebound can hardly seem realistic.
China June Industrial Production and Retail Sales (Thursday)
Retail sales have been gradually picking up since the Chinese consumers have been hit by the February lockdown: -20.6%, -15.8%, -7.5%, and -2.8%. This relatively slow recovery could be explained by the weak demand and consumers’ cautiousness. With the observed global easing of the measures and the summer season at its highest in the northern hemisphere, a return to positive levels could be expected in June. Industrial production has moved at a better pace, so after its 4.4% gain in May, a slightly higher pickup of 4.8% is anticipated.
European Central Bank Rate Meeting (Thursday)
Surprises are not expected from the ECB this time. At the last meeting, the bank added €600bn to its pandemic emergency purchase programme, and the deadline was extended to mid June 2021. The central bank also revised downwards its growth and inflation forecasts. As the German constitutional court has challenged the legitimacy of the bank’s old bond purchasing programme, the ECB needs to offer a formal response to it. Some analysts expect that the institution’s bond buying program will be modified to include “fallen angels”, companies downgraded from investment level under the impact of the pandemic measures.
Netflix Q2 Results (Thursday)
In the first quarter, Netflix boosted its revenue to $5.77bn, the best level ever achieved by the company. The slight dip in profit even in this context though suggests that costs were substantially raised during the past three months. Now Netflix is facing two challenges: retaining subscribers in the wake of lifted lockdowns and dealing with content suspension owing to the lockdown. These are not considered to be serious hurdles for the company, as new shows are released, and subscribers are expected to reach 190m in Q2, with the streaming market expected to expand further.
EU Summit On the Pandemic Recovery Fund (Friday)
The summit is to be chaired by Germany, the current rotating president. The Union has perhaps been struggling with its most arduous situation, so an immediate resolution on a package of measures is of utmost importance. Joint action is needed, as urged by Chancellor Merkel, with EU breakup looming, as some countries are quite dissatisfied with uneven conditions for grants and loans. The situation is aggravated further by challenges in some of the weaker states, like Spain, Italy, Greece, where debt levels are rising and the tourist season is stagnant, not likely to recover in the short-term. The summit is not expected to yield consensus, unless one of the sides is willing to comply.