Weekly Market Outlook
This week’s economic calendar is rich in key economic data figures, which promises to keep market volatility high. We kick off on Tuesday with the UK releasing its GDP numbers for the first quarter. On Wednesday, Germany is scheduled to report the closely watched unemployment data for its economy. On the same day, a whole string of key manufacturing PMIs will give a sign of where global business activity stands at the moment. The US Fed minutes will be released right in the middle of the week too and will provide an important insight about the discussions central bankers have had during their last interest rate meeting. The most important data figures not only for the week but for the entire month are due to be released on Thursday, so watch out for the US June Employment report! Finally, we close the week on Friday with the global services PMIs.
UK Q1 GDP (Tuesday)
The final GDP figure for the first quarter is not expected to show anything new about the state of the UK business activity at the beginning of this year. The economy was hit by the widespread February flooding and, as a result, was slowing even before the corona-induced lockdown in March. With all that in mind, the economy is seen contracting by -2%; respectively, by -1.7% on an annual basis.
Germany June Unemployment (Wednesday)
As a result of its outstanding medical and fiscal response to the coronavirus crisis, Germany has so far succeeded to limit the damage to its economy, at least in terms of unemployment. The latter has ticked up to 6.3% since March, having been 5% before that. This seems remarkably low provided the economic downfall witnessed across Europe recently. Unemployment claims have risen by 610,000 over the last couple of months. Quite low for an 80-million country as it seems, unemployment could be reasonably expected to rise in the months ahead.
Global June Manufacturing PMIs (Wednesday)
Despite feeling some pain in the past few weeks, the manufacturing sector has shown much more resilience compared to the services sector. In the current state of affairs though a more substantial rebound remains unlikely. Existing products’ backlogs will need to be marketed before manufacturing restarts and gains steam. Judging by the flash PMIs released last week, we should see at least incremental improvement in the US, UK, Germany and France.
US Fed Meeting Minutes (Wednesday)
At the last rate setting meeting, governor Powell painted a rather dark picture for the global economy, pointing out that millions of people could be jobless for some time in the next few decades. He continued by saying that in this context the main goal of the Federal Reserve was to support the American economy and preserve the financial system, rather than judging whether asset prices are too high. Wednesday’s minutes will be scrutinized by investors eager to learn more about the discussions surrounding the wide variety of steps taken by the central bank, their concerns about a possible second wave and, of course, about the health of the banking system.
US June Employment Report (Thursday)
After the record 20 million jobs lost in April, many were anticipating that the meltdown was set to continue in May too. Last month though non-farm payrolls not only failed to produce further job losses in the millions, but also smashed expectations by adding 2.5 million jobs. It appears that the return of furloughed employees back to work has been of much help for this positive surprise. The resulting uptick in other data, such as personal expenditure and retail sales has further aided the economic rebound.
Now more than ever the employment report figures will be scrutinized to see whether this healing can continue in June. In spite of continuing jobless claims stubbornly staying above the key 20-million level, analysts expect the recovery to progress further, with 3.6 million more jobs to be added back in Thursday’s non-farm payrolls. Unemployment is seen retreating to 12% from the previous month’s 13.3%.
Global June Services PMIs (Friday)
Following the record low levels in April, when the economies around the globe virtually grinded to a halt, we witnessed a recovery in May. The latter is likely to carry on further, as the reopening process continues worldwide. The flash PMIs seen last week support such a scenario in Germany, France and the UK. The services sector’s heavy reliance on tourism of countries like Italy and Spain still remains a serious concern.
The PMIs for Germany, France and the UK are forecasted to come out at 50.3, 45.8 and 47.1, respectively. Italy and Spain are also expected to show improvement to 28.9 and 27.9, respectively. Even if that is the case though, it should be kept in mind that the prospect of a substantial economic contraction in the second quarter remains unchanged.