Pre-Markets Review
Fed, GDP and Barclays

Markets in Asia continued their substantial gains for the week as investors uncertainties eased. Coronavirus lockdowns in some parts of the world started to come to an end. This also helped oil prices to jump on the expectation that we could see a rise in demand.

It was a risk on scenario for markets with those riskier assets including equity markets continuing to rally. It has been helped by the adding of yet more stimulus packages by the US and Bank of Japan.

However, we must be cautious about the market rally that has seen markets relentlessly higher since the end of March. Stocks may have recovered, but there is still growing unease about what the overall economic damage will be. Today will see an indication with the release of a preliminary GDP reading and the Core PCE inflation report.

Market expectations are that the economy has in the US contracted by around 4% in Q1. Earnings season has shown this as many companies have warned that the future is looking very uncertain. However, investors have been unwavering in their support for the major indices. However, from a technical standpoint, many stocks remain below their key moving averages. This could point to many remaining in a downtrend.

Barclays reports contracted profits

This morning has seen the news that UK banking giant Barclays’ profits have fallen by 38%. The bank mentioned it had set aside up to £2.1bn to cover bad loans and defaults related to the pandemic. The news from Barclays comes after British Airways owner IAG announced they would be making 12,000 members of staff redundant in a bid to survive this crisis.

Oil markets did steady overnight in Asia as easing of lockdown will mean demand will likely start to pick up. However, how quickly can it happen? The oil industry wants to avoid another scenario that sees prices drop into negative territory. If demand starts to pick up, it means that the glut of oil stored can begin to be used. It’s likely that demand won’t pick up enough before the expiry of the June futures contract to keep away another huge plunge lower. It’s estimated that the oil industry could see 30,000 jobs lost due to the crisis.

Today will also see the FOMC in the US. US policymakers look to decide if they have added enough stimulus into the economy to navigate this crisis. Since March, the Fed has pledged to pump over $4tn into the economy. We don’t expect to see more rate cuts from the Fed today. It will be their outlook for the year and beyond that will be of interest. Before the Fed announcement, we will see the GDP preliminary number which could show a 4% contraction in the economy. What investors want to hear from the Fed is how long they expect rates to be low for. Additionally, how low could GDP fall, and will there be any further steps to prop up the stricken economy.