Equity markets got out of bed on the right side this morning, with Asian and European bourses, and US futures off to a roaring start. The easing of lockdown across major economies, and Fed Chair Powell suggestions of supporting the economy with further ammunition if necessary, has helped support sentiment. US Treasuries appear a little less convinced; having closed the week 4bps higher, to 0.644%, the yield on the 10-year benchmark is so far trading sideways, at time of writing. Meanwhile, the dollar strengthened for a further week last week, and gold has resumed its rally this morning, to seven-year highs.
An exciting week ahead sees further opening up of major global economies and a number of flash PMI readings for May. The ever increasing US-China tensions may dominate newswires, as will the ongoing negotiations between the UK and EU. Late last Friday the Democratic-controlled House of Representatives passed a USD 3tn coronavirus tax and spending bill; this will likely be debated this week amid the Republican backlash. Any Fed rhetoric will also be followed closely this week following Fed Chair Powell’s interview yesterday where he reiterated the grimm outlook. Powell said the US economy could shrink by as much as 30% this quarter, however, added that the economy will witness a robust recovery, thus avoiding a long-term depression. He did warn that this recovery may not come until we have a vaccine, adding that the downturn may last until late 2021. Powell did once again state that negative rates in the US are not being considered. We look to Thursday’s “Fed Listens” event, where Powell will open the event which will discuss how Covid-19 is affecting the US communities. Elsewhere, Argentina may this week face its 9th default over two centuries if bondholders don't sign-off on the USD 65bn restructuring programme.
Today, we will hear more from Rishi Sunak as he addresses Parliament on funding the extended jobs retention scheme. This comes amid the UK Finance Minister’s warning of a 5.8% contraction in March and BoE Chief Economist Haldane’s concerns of a UK employment crisis comparable to the early-1980s. Also of interest will be the BoE’s Silvana Tenreyro discussion on the central bank’s ongoing response to Covid-19. In terms of data, this morning saw Japan’s Q1’20 GDP contract 3.4%yoy. On Tuesday the ECB’s Chief Economist, Philip Lane will host a webinar on the “Euro Area Outlook and Monetary Policy.” We will also hear from the Fed’s Rosengren, and Fed Chair Powell and Treasury Secretary Mnuchin will update Congress on the quarterly CARES Act. Key data readings include US buildings permits and housing starts; the former is expected to have collapsed a further -24.1% in April. Wednesday’s highlight for some may be the FOMC minutes and the US Treasury’s USD 20bn of 20-year bonds; the first 20-year issue since the 1980s. On Thursday the ECB minutes will be released, and Japan’s PM Abe will decide whether to end the state of virus emergency status in major Japanese cities. China’s NCP is scheduled to kick off on Friday, Euro-area PMIs will also be of interest.