Markets continue to grapple between the promptness of re-opening economies versus the increasing cases of Covid-19 in some parts of the world, putting a spoke in the speed of economic recovery. Indeed over the weekend some US states ordered new restrictions including mandatory mask-wearing, with President Trump also donning a face mask in public for the first time.
On the other side of the Pacific, Australia was also forced to place Melbourne under a fresh six-week lockdown due to a strong spike in active cases, as is the case in Eastern Europe, with mandatory use of face masks in Croatia and travel bans or quarantines in Hungary. Despite the largely insulated effect of Covid-19 in Malta for the time being, other countries remain engaged in a drawn out battle to control case numbers.
The key items on the agenda for the week are an important EU meeting between leaders on Friday, central bank policy making news from Europe, Japan and Canada, Opec and G20 meetings, as well as the all-important commencement of the second-quarter earnings season which gets under way in the US.
With regards to the EU meeting, leaders will meet in Brussels on Friday for discussions over the planned €750bn coronavirus recovery package and the EU’s budget for the upcoming term. As is typical with reaching consensus in the union, governments are expected to lock horns over the deal, with the scope to re-ignite the economies badly hit by Covid-19 restrictions. Germany is ready to pull off its gloves, after years of fiscal conservatism, in order to kick start the region’s economies which are forecasted to post deep economic contractions this year. The biggest beneficiaries of the programme are expected to be southern European member states. Expect markets to react on news of consensus between member states.
In the commodity space, the Opec+ group that includes Saudi Arabia and Russia is set to hold a virtual meeting on Wednesday, where discussions over the possibility of curbing oil production further in order to support prices and manage global supply stocks will be held. Demand for the prized asset is yet to see a significant recovery, with rig counts remaining in a declining trend and only the most efficient plants managing to remain operating at significant levels. The market is expecting the announcement of curbs on oil production by around 2 million barrels per day, with any significant variance from that expected to influence the price of crude on the day.
The G20 meeting between finance ministers is going to be held over the weekend, albeit the US has withdrawn from the European push for a global deal on a digital tax, therefore the outcome is expected to be largely rhetoric, calling for more co-operation on monetary and fiscal measures to tackle the coronavirus crisis.
On Thursday, ECB president Christine Lagarde will be discussing the execution of last month’s announcement regarding its’ expanded emergency asset purchase programme which is expected to total €1.35 trillion. This follows on from doubts echoed by ECB policymakers over whether they will be able to enact the programme in full. The consensus is for rates to remain unchanged.
And finally, earnings season is back on Wall Street with second quarter reporting expected to reveal the full impact of the virus inflicted restrictions on companies for a complete quarter. Most of the large US banks kick-off the reporting period between Tuesday and Thursday, with stakeholders closely monitoring their progress, as they are considered to be a key indicator of the wider corporate health situation. Earnings are expected to be hit due to falling interest rates and the challenging economic environment, with the figures reported for provisions for bad loans expected to be a hot topic.
Delta Air Lines will be reporting on Tuesday, being the first to give insight into what could be the worst quarter in aviation history. On the flip-side, in-demand streaming website Netflix and Johnson & Johnson, one of the companies racing to develop a coronavirus vaccine will be reporting this week. Stay tuned for market movements as reporting is underway, as markets have been on the fence in recent weeks, possibly in anticipation of awaiting further clarity from companies this earnings season.
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