News & Analysis

Week Ahead – A War of Words Amid the Reopening

May 18, 2020

By Deepta Bolaky
 @DeeptaGOMarkets

The coronavirus war of words between China and some governments has dominated headlines over the past couple of weeks. The confrontation between the world’s two largest economies is escalating as both the US and China are trying to send messages to the world about their response of COVID-19.

China is spreading the message of successfully controlling the virus while the US is blaming China for not providing accurate information by being open and transparent and believes China should have done more to prevent the pandemic. Even though major world leaders are disputing on who is to be blamed, the response of other countries was not swift and timely enough.

Many countries took time to realise the urgency and act accordingly which caused an epidemic to become a pandemic.

The conspiracy theories, misinformation and the propaganda are coming from all sides creating an environment of confusion for investors. The relationship between the US and China were already flawed by trade frictions and instead of bonding together to fight a pandemic, the world is witnessing a new cold war which is poised to be more dangerous and lasting for financial markets.

Risk-off sentiment will likely hit markets as US-China tensions weigh on market sentiment.

The Reopening – New Cases

Amid geopolitical frictions, the pandemic stays the predominant factor driving the markets. Investors will likely keep monitoring the number of new cases given that economies are gradually easing lockdown measures. As the world slowly opens, market participants want to gauge the speed at which the virus is spreading.

Even though investors were initially buoyed by the reopening of businesses, caution will likely prevail as they are bracing for a rocky reopening. Virus resurgence fears following new clusters of coronavirus infections in certain countries and risks of a potential second outbreak will likely be important drivers of the price action in the financial markets.

Brexit – No-Deal Preparations

While the Bank of England is preparing the UK to probably face the worst economic contraction in 300 years, Brexit woes resurfaced. There was little progress made in trade talks and the negotiations seem to have reached a deadlock. Following the UK Prime Minister’s insistence of not extending the transition period, investors are preparing for the “-no-deal scenario”.

The British Pound is revisiting lows amid mixed messages regarding the easing of lockdown, the BoE leaving the doors open for negative interest rates, a Brexit standoff, and dismal economic reports.

Haven Flows

A combination of heightened geopolitical tensions and uncertainty around the reopening of economies will drive up the demand for safe-haven assets like the US dollar and the Gold. The greenback will likely keep its status as the King Dollar compared to its peers if risk sentiment continues to fluctuate between fears arising from geopolitical tensions and economic recessions, and the reopening plans.

Economic Data – PMI

The preliminary PMI figures in major countries like the UK, US, Germany and the Eurozone will be eyed for further insights on the severe contraction seen so far in the manufacturing sector. Central Banks minutes like the Fed and RBA will also be closely watched.

Key Events Ahead

Monday
Gross Domestic Product (Japan)
Eurogroup Meeting (Eurozone)

Tuesday
RBA Meeting Minutes
Industrial Production (Japan)
Claimant Count Change, ILO Unemployment Rate, Average Earnings (UK)
EcoFin Meeting and ZEW Survey – Economic Sentiment (Eurozone)
ZEW Survey – Current Situation and Economic Sentiment (Germany)
Building Permits and Housing Starts (US)
GDT Price Index (New Zealand)

Wednesday
Westpac Leading Index (Australia)
PBoC Interest Rate Decision (China)
Consumer and Retail Price Index, and PPI Core Output (UK)
Gfk Consumer Confidence (Germany)
Consumer Price Index, ECB Interest & Deposit Rate Decision, ECB Monetary Policy Statement and Press Conference (Eurozone)
BoC Consumer Price Index (Canada)
EIA Crude Oil Stocks and FOMC Minutes (US)

Thursday
Commonwealth Bank Manufacturing PMI (Australia)
Merchandise Trade Balance, Imports and Exports (Japan)
Markit Manufacturing and Services PMI (UK)
Philadelphia Fed Manufacturing Survey, Jobless Claims, Markit Manufacturing, Services and Composite PMI and Existing Home Sales (US)

Friday
National Consumer Price Index (Japan)
Public Sector Net Borrowing and Retail Sales (UK)
Markit Manufacturing, Services and Composite PMI (Germany)
Markit Manufacturing, Services and Composite PMI (Eurozone)
ZEW Survey – Expectations (Switzerland)
Retail Sales (Canada)

By Deepta Bolaky
 @DeeptaGOMarkets

Tuesday, 19 May 2020 
Indicative Index Dividends
Dividends are in Points
ASX200WS30US500US2000NDX100CAC40STOXX50
03.1380.2690.0610.52100
ESP35ITA40FTSE100DAX30HK50JP225INDIA50
000031.22100


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