Week Ahead: OPEC meets, Caixin PMI to reveal coronavirus impact

Week Ahead
XRay

OPEC to the rescue, Democrats approach Super Tuesday, US Nonfarm Payrolls and more on Covid-19

Welcome to your guide to the week ahead in the markets. Watch the latest week ahead video in XRay on the platform now.

OPEC to the rescue?

Oil has been hammered as the coronavirus forced factories across China to cease production and grounded flights across the globe. China is coming back online now, but crude inventories have been building amid the demand drop-off and we could be facing shutdowns in other parts of the world if the virus continues to spread.

Crude and Brent fell to their lowest levels in over 12 months last week, but hope remains that OPEC will ride to the rescue when it meets on Thursday and Friday. The current pact to cut production by 1.7 million barrels per day expires at the end of this month. There is talk of extending the deal and cutting production by another 600,000 barrels per day, but it is uncertain whether cartel ally Russia will agree to such a move.

Caixin PMI

Chinese manufacturing came back online towards the end of February, with travel data showing a larger-than-expected number of workers were able to leave their hometowns and return to work after the extended Lunar New Year holiday. The number of people travelling at the end of the month was still well below usual post-holiday levels, however. Even businesses that have reopened are facing labour shortages, supply chain disruptions, and weak demand. This week’s Caixin Manufacturing PMI will be a key measure as economists slash growth expectations and markets look for clues over how severe the economic impact of a large-scale outbreak in the US or Europe could be.

Democrats approach Super Tuesday

This week will give markets a clearer indication of which Democratic candidate is likely to challenge President Trump in this year’s election. 14 states are due to hold primaries on ‘Super Tuesday’. Only 100 delegates were assigned during three primaries last week, with Bernie Sanders securing almost half of those. A strong performance on Super Tuesday would cement his position as the frontrunner – the number of delegates up for grabs on Tuesday alone is around a third of the nearly 4,000 needed to secure the nomination. Bernie is the worst outcome as far as the markets are concerned due to his socialist policies, so any shift in voting towards more moderate candidates like Joe Biden could see markets breath a small sigh of relief.

US nonfarm payrolls

Usually the highlight of the economic calendar, this month’s nonfarm payrolls may not be so impactful. The monetary policy outlook is currently ruled by coronavirus headlines – markets are betting on a rate cut in April, if not this month, and a solid set of jobs numbers would be unlikely to materially shift those expectations. Markets are thinking about the potential economic impact of a large-scale Covid-19 outbreak in the US, so backwards-looking data may not settle many nerves

Heads-Up On Earnings

2nd March – 01.45 GMTChina Caixin Manufacturing PMI
2nd March – 08.15-09.30 GMTEurozone / UK Finalised Manufacturing PMIs
2nd March – 15.00 GMTUS ISM Manufacturing Index
3rd March – 03.30 GMTRBA Official Cash Rate Decision & Statement
3rd March BeiersdorfQ4 2019
3rd March – 10.00 GMTEurozone Flash CPI Estimate
3rd March – After MarketHewlett Packard EnterpriseQ1 20202
4th March – 00.30 GMTAustralia Quarterly GDP
4th March – 07.00 GMTDS Smith Q3 Trading Update
4th March – 08.15-09.30 GMT Eurozone / UK finalised Services PMIs
4th MarchLegal & GeneralQ4 2019
4th March – Pre-MarcketDollar TreeQ4 2019
4th March – Pre-MarketCampbell SoupQ2 2020
4th March – 15.00 GMTBank of Canada Interest Rate Decision and Statement
4th March – 15.00 GMTUS ISM Non-Manufacturing Index
4th March – 15.30 GMTUS EIA Crude Oil Inventories Report
4th March – After MarketZoom Video CommunicationsQ4 2020
5th March – 00.30 GMTAustralia Trade Balance
5th March – All DayOPEC Meeting, Vienna
5th March – Pre-MarketKrogerQ4 2019
5th MarchAvivaQ4 2019
5th March – 15.00 GMTUS EIA Natural Gas Storage Report
5th March – After MarketCostco Wholesale CorpQ2 2020
6th March – 00.30 GMTAustralia Retail Sales
6th March – All DayOPEC+ Meeting, Vienna
6th March – 13.00 GMTUS Nonfarm Payrolls Report

Watch The Week Ahead on XRay

Highlights on XRay this week:
Daily –  08:15 GMT
European Morning Call
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March 2nd – 15.00 GMT
The Trendsignal Podcast
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March 3rd – 10.00 GMT
FXTrademark Course: Trading Strategies
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March 4th – 10:00 GMT
FXTrademark Course: 10 Laws of Trading
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March 6th – 13:00 GMT
Live Trade Setups with Mark Leigh
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US and Eurozone spending and confidence, Best Buy earnings

Week Ahead

Welcome to your guide to the week ahead in the markets.

Has COVID-19 peaked?

Markets will of course remain susceptible to news surrounding the COVID-19 outbreak over the coming week. The number of new cases recorded daily had slowed towards the end of last week, but an outbreak in South Korea reignited fears of a global spread. Over 75,000 cases and more than 2,100 fatalities had been reported by the end of the week. An acceleration of cases outside of China could prompt further flights to safety, but otherwise the market seems relatively confident that the outbreak is contained and that stimulus from Beijing and the PBoC will soften the economic hit.

US GDP, durable goods, personal spending

Members of the Federal Reserve were feeling confident about the state of the US economy during their last policy meeting, according to last week’s minutes. The FOMC thinks the outlook has gotten “stronger”, and the coming week offers plenty of data to either challenge or support that view. CB confidence is expected to have ticked higher in January, durable goods orders to have fallen –2%, and core PCE to remain stable on the month. While personal income growth is predicted to have risen, spending is likely to have weakened. A second estimate of Q4 GDP is likely to hold steady at 2.1%.

Eurozone, Germany confidence, flash inflation

The euro could be facing more headwinds this week after sliding to multi-week lows against the pound and multi-year lows against the dollar last week. Sentiment data from Germany and the bloc is expected to soften, mirroring market concerns over the health of the bloc’s economy following some poor industrial data. Flash inflation figures for the Eurozone and Germany are unlikely to make inspiring reading; even if price growth in Germany has strengthened towards the ECB target again, the wider Eurozone reading remains far behind.

Earnings: Best Buy, Bayer

Best Buy reports earnings before the open on February 27th. The stock has put in a strong performance over the last six months, rallying around 40% compared to 15% gains for the retail-wholesale sector and 18% for the S&P 500 index during the same period. Best Buy has delivered 11 earnings beats in the past 12 quarters and beat expectations by over 9% in each of the past two quarters.

Bayer also reports earnings on the 27th. The stock is up 45% from the June 2019 low of 51.90, and was last trading around 75.00.

FTSE in focus on deluge of FY results

Earnings reports will be a key driver of UK stocks over the coming days. A deluge of full-year results for 2019 from blue-chips including Standard Chartered, British American Tobacco, Rio Tinto, Persimmon, Taylor Wimpey, RSA Insurance and Meggitt provide clear risks for the FTSE 100 index over the coming sessions. A slew of reports from FTSE 250 constituents throughout the week could also affect the general sentiment around UK plc.

Heads-Up on Earnings

The following companies are set to publish their quarterly earnings reports this week:

24th Feb – 09.00 GMTGerman IFO Business Climate Index
24th Feb Associated British Foods Pre-Close Trading Statement
25th Feb – 12.00 GMTManchester UnitedQ2 2020
25th Feb – Pre-MarketHome DepotQ4 2019
26th Feb – 06.00 GMTRio TintoQ4 2019
26th Feb – 08.00 GMTDanoneQ4 2019
26th FebTaylor WimpeyFY 2019
26th Feb – Pre-MarketLowe’s CompaniesQ4 2019
26th Feb – 15.30 GMTUS EIA Crude Oil Inventories
27th Feb – 00.30 GMTAustralia Private Capital Expenditure
27th Feb – 04.15 GMTStandard CharteredQ4 2019
27th Feb – 06.30 GMTBayerQ4 2019
27th FebPersimmonQ4 2019
27th FebRSA InsuranceFY 2019
27th Feb – 10.00 GMTEurozone Sentiment Survey Results (Consmer, Business, etc)
27th Feb – After-MarketAutodeskQ4 2020
27th Feb – 13.30 GMTUS Q4 GDP 2nd Estimate, Durable Goods Orders
27th Feb – 15.30 GMTUS EIA Natural Gas Storage
27th Feb – Pre-MarketBest Buy Q4 2020
28th Feb – 10.00 GMTEurozone Preliminary Inflation
28th Feb – 12.30 GMTUS PCE Index, Personal Spending, Personal Income
28th Feb – 13.00 GMTGermany Preliminary Inflation

European equities rise as China eases

Forex

Police in Hong Kong are investigating an alleged toilet paper heist, amid a shortage due to the coronavirus outbreak. Things are bad when loo roll becomes currency.

It’s a dull old session out there today: European shares were a little indecisive at the start of play following a mixed bag overnight in Asia, but are leaning higher with stimulus from China helping to lift the mood. Basic resources stocks were among the biggest gains on the FTSE as the blue chip index moved to try to reclaim the 7500 level, last some way short at 7445.

Shares in Hong Kong and Shanghai advanced as China cut a key medium-term interest rate, while Tokyo shares slipped on growth concerns. Markets are betting this will be only a part of a wider stimulus programme to offset the economic damage wrought by the Covid-19 coronavirus – the PBOC has already been injecting liquidity and there will no doubt be more to come. China reported another 2k cases by Sunday night, taking the total to more than 70k.

US stocks finished higher for the second straight week. Markets in the US will be closed today for Washington’s birthday but have rolled into the holiday in fine fettle. Industrial productions were weak, down 0.3% in January, largely down to Boeing. Ex-aircraft production, factory output rose 0.3%. Retail sales showed the US consumer started the year in decent shape, with headline sales +0.3% month on month.

There are growing fears about the economic impact. Japan’s economy shrank at the quickest pace in six years in the last quarter of 2019 – down 6.3% as the consumption tax hike hobbled the economy far worse than thought.

Most think to hit to tourism and exports resulting from the outbreak will mean the economy contracts again in the March quarter, pushing Japan into recession. Meanwhile Singapore has slashed its growth outlook for 2020.

Oil is higher above $52, having closed last week well. Look like a base has been formed at $50, looking to cement gains north of last week’s highs at $52.2.

In FX, there are tentative signs of stabilisation and basing for EURUSD. Speculators have not been this net short since Jun 2019, with net shorts at nearly 86k, contracts so the short-euro trade is very crowded. As ever this CFTC data is a week old so I wouldn’t be surprised if the next set of data showed deeper net shorts towards 100k corresponding to the dove under 1.0880. The inverted hammer on Friday suggests near term reversal but until 1.09 is reclaimed the bears remain in control.

Sterling is giving a gallic shrug to some French fighting talk vis-à-vis Brexit trade talks. GBPUSD is steady at 1.3040, with support at 1.30 and near-term resistance seen at the 50-day moving average at 1.3070.

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