Week in a Glance: re-open, NFP, Bank of England , USA vs China

11 พ.ค. 2020

The last week was very busy. The most influencing event of course was a partial opening of the economies of the Eurozone and some US states. As a result, the Fear Index at the end of the week fell to the values that were at the time the pandemic just began. Stock markets, respectively, approached the marks that were before it became clear that the coronavirus would not stop in China.

Such behavior of markets is rather strange. The number of cases in the world continued to grow, exceeding the mark of 4 million, and by the end of the week there was not even a hint of a downward trend in the world. On the contrary, the new peak looks much more threatening than the previous 5 peaks (!). That is, at least another 4-5 weeks, the global economy will suffer.

How strong? Look at the NFP data to assess the scale of the crisis: -20 million - such a number has never been seen in the history of the United States. That is, the scale of the crisis is unprecedented. In this favor evidence forecasts of the Bank of England announced last week following the meeting on Thursday: the Central Bank predicts the worst economic crisis in the UK since 1706. The central bank said it expects gross domestic product to decline by 14% during 2020 and by 25% in the second quarter.

In this regard, despite the fact that the US stock market has completely and totally lost touch with economic reality, during this week we will continue to sell in the US stock market, but with stops.

In addition, sales of the pound against the dollar and the euro (sell GBPUSD and buyEURGBP) this week only added relevance. Not only because of the forecasts from the Bank of England, but also in the intensification of talks about the "hard" Brexit. German Foreign Minister Heiko Maas said that the risk of hard Brexit is increasing, since negotiations between the UK and the European Union on future trade relations have not yet led to any progress. It is clear that this is part of the game, but the desire to buy a pound from many should be discouraged with such news.

Another important topic of the past week, which does not add optimism and is not taken into account either in the dynamics of the Fear Index or in the dynamics of stock markets, was a sharp increase of tensions between the United States and China. The US wants to make China guilty in its problems associated with the epidemic and threatens to disrupt the implementation of the first phase of the trade deal. China, in turn, threatens to sell off part of the US government debt, which could bring down not only the dollar, but also the entire debt pyramid that the US has been building for years.

In the meantime, the fundamental situation in the oil market is changing radically: OPEC + is in game (minus 10 million b / d), the USA is actively reducing production (minus 1.2 million b / d), oil reserves in the USA are growing at a slower pace and the number of active oil rigs in the US reached its lowest level since 1940 (!). At the same time, oil demand, on the contrary, is growing (according to JBC Energy in May it could grow by 7.5 million b / d). It is difficult to imagine better conditions (a sharp decline in supply with a sharp increase in demand) for rising oil prices. So we recall our medium-term idea for oil purchases, which, despite the recent growth of the asset by a couple of hundred percent, remains relevant.