Over the weekend we have seen chaos return to the market as coronavirus concerns and oil sent the financial markets into disarray. The torch paper was lit late on Friday following the disagreement in the OPEC meeting over production cuts which in turn has sparked a price war. Oil prices plummeted around 30% after Saudi Arabia slashed its official selling prices and set plans for a dramatic increase in crude production next month. This was the biggest single day move since the Gulf War. The move from Saudi Arabia was in response to Russia balking at making a further steep output cut proposed by OPEC to stabilise oil markets. This move combined with intensifying fears over coronavirus have hit the wider market. Over the weekend, Italy put measures in place that quarantines up to 16 million people in Lombardy and 14 other provinces. The knock on effects for currency market was increased volatility as the US Dollar weakened dramatically. Futures markets are now starting to price in rate cuts down to zero percent following the weekend events.
Last week the market focused on economic data from China to assess the impact that coronavirus could cause to the global picture. Both the service and manufacturing PMI posted all time lows and were well below the forecast. These figures were under scrutiny as Chinese economy was the first to be hit by coronavirus. Stock markets continued to slide as economic data posted much worse data reading than anticipated.
There was mixed messages from the start of the UK-EU trade talks. Some reports stipulated that the EU and UK held constructive and good natured talks with a degree of common understanding in some areas according to a UK source. However, EU Chief Brexit Negotiator Barnier said that after the first round of EU-UK talks, there are many divergences between them on the future relationship and serious divergences include the level playing field. It should be remembered that this is the first round of talks and given the hostilities prior to the discussions, this has been perceived as a positive start.
Looking to the week ahead coronavirus will be once the key talking point with markets waiting to see what further developments will come. In the meantime, Chancellor Sunak faces a difficult balancing act as he delivers his first Budget on Wednesday. The market will be keen to see what measures he will take to help the economy. On Thursday, the ECB will be delivering their interest rate decision.
There is no economic data due for release today but following the overnight moves the market will be digesting information and acting accordingly.
- China Inflation
- China new loans
Following the disappointing manufacturing and service sector data last week the market will continue to analyse economic data from the region for clues on future growth pressures. Over the weekend China’s exports contracted sharply (17.2%) in the first two months of the year.
- GDP (monthly)
- UK Budget
- US CPI
Following the volatility we have seen in the market of late and the probable strain this will put on the UK economy the market will focus on what measures Chancellor Sunak will implement. In the absence of a more major re-write of the rules, the scope for significantly increasing day-to-day spending is likely to be limited, instead tackling the near-term fallout from the covid-19 virus is also likely to be high on the agenda.
- ECB interest rate decision
The ECB on 02/03 stated that it stands ready to take “appropriate and targeted measures” to address underlying risks to the Eurozone economy. The following day the Fed heaped pressure on the ECB by cutting interest rates by 50 basis points with Bank of Canada and the Reserve Bank of Australia following suit. However, the ECB don’t have the luxury to cut as aggressively with interest rates already near the lows of 0.50%. Following the increased volatility over the weekend the market will be keen to see if the ECB choose to cut rates, the problem they have is that with interest rates where they are the tool kit is fairly limited.
- US UoM consumer sentiment
The University of Michigan’s consumer sentiment survey for March will be monitored for signs of any impact from coronavirus risks.