Week in a Glance: Central banks, remdesivir, earnings season

4 de mai. de 2020

Last week once again turned out to be extremely rich on events and movements in the financial markets. The main anti-hero of the week was the US dollar, which was under rather strong downward pressure. The reason is the growth of optimism against the background of information about the wonderful properties of remdesivir - the “magic pill” from Gilead, which should help in the fight against the pandemic, then about the easing restrictions and reopening of economies, also about the steps of the Bank of Japan, which decided to remove the limits on purchases government debt, in fact giving a card blanche to any government action to support the economy, and the financial results of the largest US corporations, which came out not as bad as they could be.

But the end of the week passed on a minor note. Weak data from the USA (GDP decreased by 4.8% - by the way, the first decline since 2009, and the number of unemployed increased by almost 4 million over the week) and the Eurozone (GDP decreased by 3.8%), the overall failure of the earrings season ( corporate profits fell radically and forecasts for the future are even darker), an increase in the number of diseases, as well as the potential failure of attempts to open the German economy - all these led not only to a decrease in the US stock market at the end of the week, but also to a partial recovery of the dollar in the foreign exchange market, especially against commodity and emergency currencies.

In this regard, our recommendations for the current week are globally unchanged: we will continue to look for opportunities to buy the dollar, especially against the Russian ruble and commodity currencies, we will also sell in the US and Eurozone stock markets.
We still find market optimism too premature. Especially when you consider that there is an indicator like China, which is ahead of everyone by a couple of months and acts as a kind of litmus test for future economic processes in the rest of the post-epidemic world. The "Economist" gave some statistics on economic activity in China after quarantining. Trains in the subway and domestic flights fell by a third, the cost of visiting restaurants fell by 40% and so on. That is, while there is no vaccine, in the next few months, there is nothing to count on at least approaching the pre-crisis levels of economic activity.

As for our medium-term position in oil, it is unchanged - we continue to hold purchases. The situation in the oil market after a few demarches of the USO (world's largest oil ETF-fund) stabilized. The supply is falling rapidly, OPEC + is starting to act, oil inventories in the US are growing at a slower pace than expected - apparently the worst is over (looks like).

And a few words about the upcoming week. It will be calmer from the point of news background: the peak of the earnings season has passed, most central banks have spoken. But this does not mean that high volatility will disappear. Especially on Friday, when statistics on the US labor market will be published. Well, the meeting of the Bank of England on Thursday also should not be written off, especially in the light of our medium-term EURGBP purchase position, which continues to be relevant this week.