Will risk sentiment continue to improve this week?

Will risk sentiment continue to improve this week?

Risk sentiment has steadily improved the past week on tentative signs that the pandemic is slowing in U.S. and European hotspots, and bolstered by the U.S. Federal Reserve’s massive new lending programme for small companies. The Fed on Thursday announced a $2.3 trillion programme to offer loans to local governments and small and mid-sized businesses, to backstop the U.S. economy as the country battles the coronavirus crisis.

Wall Street cheered the announcement and closed out the trading week on a high note, while the Dollar drifted lower due to the large increase in supply of the federal currency.

However, caution is still in the air, given so little is known about the virus and as many nations continue to grapple with the massive economic damage caused by the outbreak. And the virus headlines will remain the main driver of the market sentiments in the coming weeks.

On Wednesday, the Bank of Canada will hold its policy meeting, but is expected to stand pat after having slashed its overnight rate and launched its first ever quantitative easing programme during the past few weeks. So the meeting is not expected to generate much reaction to the Canadian currency.

On the data front, a raft of key economic data due to be released from the US this week. Most importantly, the retail sales for March on Wednesday and the Initial Jobless Claims on Thursday. Retail sales are expected to further decline by 8% in March, but this can be seen as not too much gloomy given that most consumers were advised to stay at home. However, the Initial Jobless Claims can attract more attention. Forecasts suggest that another 5 million Americans filed for unemployment benefits last week, after a staggering 16.8 million Americans have filed for unemployment benefits in the last three weeks. And another disappointing set of jobless data could throw a monkey wrench into the latest stock rally, and could help the Dollar recover somehow.

The stock market rebound will be put to the test as well on Friday when the Chinese GDP for Q1 will be released alongside with the industrial output and retail sales numbers for March. Since China was the first country to suffer the spread of the Covid-19, there are no doubts that the Chinese economy had been severely damaged in the first quarter of the year. So forecasts point to an 8% shrunk in the country’s economic activity. Any negative surprises in the GDP figures will dent risk sentiments.

In brief, this weeks’ economic highlights:

Wednesday, April 15, 2020:

• US Core Retail Sales (MoM) (Mar) (12:30 GMT)
• US Retail Sales (MoM) (Mar) (12:30 GMT)
• BoC Monetary Policy Report (14:00 GMT)
• BoC Interest Rate Decision (14:00 GMT)
• Crude Oil Inventories (14:30 GMT)
• BoC Press Conference (15:15 GMT)

Thursday, April 16, 2020:

• Australia Employment Change (Mar) (01:30 GMT)
• US Building Permits (Mar) (12:30 GMT)
• US Initial Jobless Claims (12:30 GMT)
• US Philadelphia Fed Manufacturing Index (Apr) (12:30 GMT)

Friday, April 17, 2020:

• Australian Retail Sales (MoM) (01:30 GMT)
• Chinese GDP (YoY) (Q1) (02:00 GMT)
• Chinese Industrial Production (YoY) (Mar) (02:00 GMT)
• EU CPI (YoY) (Mar) (09:00 GMT)