Weekly Market Outlook

This week is rich in key data releases in both Europe and in the US. On Wednesday, the United States will release its first quarter gross domestic product number. On the same day, there is a scheduled FED meeting, an event always carefully scrutinized by markets. The biggest EU economy, Germany, will release its unemployment data on Thursday, whereas almost three hours later in the day, the European Central Bank will hold its rate-meeting. Each of the listed economic figures and events has the potential to have a strong impact on forex and capital markets, so watch out carefully and brace for volatility!

US Q1 GDP (Wednesday)

With over 25 million new jobless claims filed in the last few weeks, the Q1 GDP is a keenly awaited piece of economic data. Yet given its lagging nature, it is likely to just give a hint of the level of damage the US economy is set to take in the mid-term. Provided that the lockdown of the American economy came in the middle of March, the gross domestic product figure will be a serious understatement of what is to be expected in Q2. The latest non-farm payrolls showed a precipitous drop of 701,000 jobs in March, which clearly demonstrated that US businesses were getting ready for a strong blow. With all this in mind, GDP estimates are for a decline of 2.7%.

FED Meeting (Wednesday)

The recent actions by the Federal Reserve were taken outside of the regularly scheduled meetings in the last couple of months. The last such instance was on 9 April: the announcement of the new $2.3 trillion programme designated to support the American economy. The central bank also announced it was expanding the scope of its bond-buying programme to include ETFs investing in lower rating bonds. Wednesday’s meeting is not expected to bring any new measures. Still, it will be rather interesting to see how US policymakers view the outlook for the coming months in the light of the drastic deterioration seen in the labor market.

German April Unemployment (Thursday)

The latest report showed unemployment steady at 5% in March. This is expected to increase substantially in April and will serve as one of the first leading indicators about the consequences of the lockdown measures imposed by local governments on the European labor market. Despite the collapse in German exports in March, there was little material change in German unemployment figures for the last month. The picture we are about to see this Thursday is likely to be much different.

ECB Meeting (Thursday)

ECB’s President, Christine Lagarde, has recently announced that the bank is committed to do everything within its mandate, to help the block go through the crisis. The question though is what else is left in the central bank’s arsenal, with rates already in negative territory. The €750 billion QE programme alone will not help much without the structural and fiscal measures that the European Union needs to implement if it wants to avoid a depression.

The ECB has already expressed anxiety about the rise in non-performing loans across the currency union. It has gone further by advocating the creation of a “bad bank”, an issue that has been a big concern for the markets, given the widening interest differential between German and Italian 10-year bonds.