Key Points From This Week
US Dollar Sell-Off
The Dollar has seen a sharp repricing of rate path expectations over recent days. The growing severity of the COVID-19 outbreak has seen investors ramping up their expectations of a Fed rate cut. The market is now pricing in a .25% cut by the April meeting as well as two further cuts over the year in anticipation of a further economic downturn as a result of the impact of the virus on global activity.
COVID-19 Intensifies
Despite China having recently reported that the number of news cases of the virus there has slowed over the last week, the outbreak is accelerating outside of China. Cases of the virus have now been confirmed on every continent. In Europe, Italy has seen an explosion in the number of cases and deaths as a result of the virus while the UK and the US are both reporting further virus cases leading to plans of nationwide shutdowns to help protect against the disease spreading.
UK Issues Brexit Trade Talk Ultimatum
In a document published this week, the UK government has warned the EU that unless they can find agreement over a “broad outline” for a trade deal by June, the UK will exit the trade talks prematurely. Despite the December 31st deadline, Johnson has warned that an outline must be agreed in June (to be finalised by September) or he will walk out talks. UK investor uncertainty has increased in response to the news which raises risks once again for businesses and investors.
Key Events Next Week
Keep An Eye On
US & Chinese Manufacturing Data
In light of recent developments, factory activity data next week will be closely watched by the market and could have a significant impact on risk appetite. If manufacturing is seen weaker this will be a disappointing blow given the recent rebound seen in response to the signing of the phase-one trade deal between the US and China.
RBA Rate Decision
The RBA is widely expected to announce a rate cut at next week’s meeting. The economy was already in a fragile place following the wildfires there at the start of the year and now, with the negative impact from COVID-19 also exerting downward pressure, most banks judge that another .25% cut is needed.
BOC Rate Decision
Forecasts are more divided when it comes to the BOC. At its last meeting, the bank signalled that it was not expecting to move rates lower at all this year, striking a firmly optimistic tone. However, given the trajectory of global activity and the increase in uncertainty since that meeting, dovish risks have increased. For now, the BOC seems more likely to remain in wait and see mode with some dovish guidance to help reassure investors.
NFPs
The US labour reports will be a key release next week, as they are each month. The market will be keen to seen how the COVID-19 outbreak has impacted labour market conditions (if it has yet). Any weakness will likely see USD come under further pressure as investors step up their easing expectations.
Keep An Eye On
OPEC Meetings
OPEC meets next week for its March review and the market is widely expecting that further measures will be announced. When OPEC last met in December 2019, it agreed to increase the level of its production cuts by 500k barrels a day. The current program is due to expire in March pending this review. In light of the outbreak of COVID-19, which has sent crude prices careening lower, most players expect that OPEC will extend the cuts further, at the least, and possible increase the level once again.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!