US President Donald Trump was out in full force this week in his attempt to blame China for the spread of the coronavirus. He was also touting a strong US Dollar! As economic data around the globe continues to be dismal, many countries and central banks also continue to say they are prepared to do more if necessary, with some saying they are discussing negative interest rates. However, the US Fed is not one of those central banks. Brexit talks continued last week, but both sides still seem far apart. Saudi Arabia voluntarily cut back another 1 million bpd, while OPEC slashed demand expectations for oil. This week the focus will continue to be on the reopening of countries and US States. So far, its been “steady as she goes”!
President Trump is in “Blame Game” mode, and he’s blaming China for the spread of the coronavirus. As a result, last week Trump said there would be no renegotiation of the US-China Trade Deal despite the ongoing coronavirus, and then announcing that Federal Funds for retirement would no longer be invested in Chinese stocks. On Thursday, Trump continued his rhetoric saying, “ I’m very disappointed in China. I will tell you that right now.” (He also touted that it is a great time to have a strong US Dollar.) The final act for the Trump Administration on Friday was to amend an export rule to strategically target Huawei’s acquisition of US semiconductors. The Chinese company has been accused consistently by the US of stealing US technology. This game appears to be just beginning. What will China’s retaliation be towards the US? Traders need to watch how this plays out and be weary that it could have an adverse effect on stocks and the US Dollar.
With the ongoing coronavirus pandemic, the economic data continues to be dismal. For example, Australia lost nearly 600,000 jobs during April and the US Retails Sales were down 16.6% in April. As a result, many central banks are considering negative interest rates (for those who have not already done so). The RBNZ met last week and said they could consider it, along with the BOE. However, Fed speakers were in unison this week suggesting they are not considering negative rates. The fed funds futures curve began pricing in negative rates for 2021 last week. This needs to be monitored. A negative Fed Funds rate reduces earnings for banks. Fed Chairman Powell speaks twice this week and will be on tv Sunday evening. If stocks turn lower, traders need to listen to hear if the Fed’s language begins to change. Regardless, more relief is on the way, as many countries continue to enact new fiscal policies aimed at keeping the economy afloat until the coronavirus is under control.
Brexit talks stalled once again as UK and EU negotiators met last week. However, both sides seem to be at a standstill. Boris Johnson said consistently said he is ready to leave without w deal, while EU’s Barnier said after last weeks meetings that he is not optimistic about the Brexit talks. Talks will begin to heat up again as we head into summer, which could affect both the Pound and the Euro.
With June Crude Oil futures expiring next week, many traders are wondering if oil can trade back below zero. However, unlike previous contracts, the volume and open interest has already been rolled to the July contract. Traders rolled earlier than usual to prevent them from holding onto the June contract too long heading into expiration. Therefore, the July contract is already the more liquid one, and there will be less to roll as we get closer to expiration. Having said that, the June contract is up nearly an additional 20% this week to almost $29.50. Although OPEC has cut their 2020 forecast for demand, Saudi Arabia has already voluntarily cut back production by 1 million bpd. The focus now is on the June OPEC meeting to determine if supply can be cut back further.
Countries around the world and US states are beginning to reopen. Germany is easing restrictions, allowing shops to reopen including restaurants, gyms, and bars. However, there will be guidelines, which include social distancing. Germany also said they will loosen quarantine restrictions for travelers from the EU and UK. In the US, each state can reopen at its own discretion, as each state has its own level of virus severity. For example, in California, the stay at home order in LA county has been extended for 3 months while in Georgia the economy already has re-open. This slow and steady pace has yet to yield significant increases in percentage of those who have the virus, however, it may be still too early to tell. As each country and state begins to open, everyone needs to be aware of potential outbreaks.
Although earnings season is just about over, there are still some significant earnings reports to watch this week, including BIDU, RYA, WMT, HD, LOW, TGT, MKS, SVT, NVDA, BABA and PDD.
As far as economic data, the biggest data pieces will be the Manufacturing and Services PMIs due at the end of the week. This will be the first good look at May data. As April’s data is now the new benchmark to beat, it will be important to see if the data is better or worse than April. Other important economic data is as follows:
- US: Fed Chairman Powell to Appear on “60 Minutes”
- Japan: GDP QoQ (Q1)
- China: House Price Index (APR)
- New Zealand: PPI QoQ (Q1)
- Australia: RBA Meeting Minutes
- UK: Claimant Count Change (APR)
- Germany: ZEW Economic Sentiment Index (MAY)
- US: Housing Data (APR)
- US: Fed Chairman and Treasury Secretary Mnuchin Testimony before Senate
- China: Loan Prime Rate 1Y
- UK: Inflation Data
- EU: Inflation Rate Final (APR)
- Canada: Inflation Rate
- US: FOMC Minutes
- Crude Inventories
- Australia: Manufacturing and Services PMI Flash (MAY)
- Australia: RBA Gov Lowe Speaks
- Japan: Trade Balance (APR)
- UK: Manufacturing and Services PMI Flash (MAY)
- US: Initial Jobless Claims
- US: Manufacturing and Services Flash PMI (MAY)
- US: Existing Home Sales (APR)
- US: Fed Chairman Powell Testimony
- New Zealand: Retail Sales QoQ (Q1)
- Japan: Inflation Rate
- UK: Retail Sales
- EU: Manufacturing and Services PMI Flash (MAY)
- Canada: Retail Sales
Chart of the Week: Daily Spot Gold
Source: Tradingview, FOREX.com
Although stocks continue to grind higher, gold is moving higher as well. Many people think of gold as an asset class to protect themselves during risk off mode. However, the correlation coefficient shows that until this month, the correlation during the coronavirus outbreak has largely been strongly positive to stocks. Last week, the precious metal broke out of a 1-month consolidation, which created a pennant formation. The target for a pennant is the length of the flagpole added to the breakout point of the pennant, which in this case puts price just above $2000. First resistance is at previous highs of 1800. After that, resistance is the all-time high of 1925, set in September 2011. Support is back at the apex trendlines of the pennant near 1711 and 1692. Below that, price can fall to 1640.
With a light economic calendar ahead once again for the week, the focus will continue to be on the coronavirus. However, the back and forth between China and the US may steal the headlines from the actual coronavirus data itself.
Please remain vigilant and always wash your hands. Have a great week!