Investors will be awaiting the International Monetary Fund’s updated forecasts for the global economy this week, which are expected to show a steep downward revision amid the impact of restrictions aimed at containing the spread of the coronavirus pandemic.
U.S. figures on weekly initial jobless claims have been the key indicator to watch and will continue to be in focus this week, while March U.S. retail sales figures are expected to show an unprecedented slowdown.
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A flurry of appearances by Federal Reserve policymakers along with first quarter earnings reports will be an important barometer of the economy. Meanwhile, the biggest supply cut ever contemplated by the world’s top oil producers continues to hang in the balance. Here’s what you need to know to start your week.
The IMF will release its detailed World Economic Outlook forecasts on Tuesday after the IMF and World Bank Spring Meetings, which will be held by video conference as a result of the pandemic.
IMF Managing Director Kristalina Georgieva warned last Thursday that the pandemic will turn global economic growth “sharply negative” in 2020, triggering the worst fallout since the 1930s Great Depression, with only a partial recovery seen in 2021.
In remarks prepared for delivery ahead of the Spring meetings, Georgieva said the “bleak outlook” applied to advanced and developing economies alike. “Everybody hurts. Given the necessary containment measures to slow the spread of the virus, the world economy is taking a substantial hit.”
Her speech also underlined the need for the meeting to offer debt relief and to agree an increase in the IMF’s financial firepower so it could help the world’s poorest countries through the crisis.
Economic data to show depth of fallout
Investors will once again be focusing on Thursday’s report on weekly jobless claims, which are expected to be in the millions again. The number of Americans seeking unemployment benefits in the last three weeks has topped 15 million.
“In its first month alone, the coronavirus crisis is poised to exceed any comparison to the Great Recession,” said Daniel Zhao, senior economist at Glassdoor. “The new normal for unemployment insurance claims will be the canary in the coal mine for how long effects of the crisis will linger for the millions of newly unemployed Americans.”
But this week’s calendar also features data on March retail sales and industrial production, giving markets a broader range of figures to quantify the economic impact of the virus. Retail sales are expected to post the largest drop at least three decades, after city and state shutdowns spread across the country and millions lost their jobs. Industrial production data could show the largest decline in the post-World War 2 era.
Chicago Fed President Charles Evans, St. Louis Fed President James Bullard and Atlanta Fed President Raphael Bostic are all scheduled to make appearances this week, with investors keen to hear how policymakers view the scale of the economic downturn.
The Fed has slashed rates to zero, launched open-ended bond purchases and introduced a suite of emergency lending tools in response to the economic shockwaves unleashed by the virus.
Last week’s Fed minutes indicated that officials expect current ultra-loose monetary policy measures will remain in place against a “profoundly uncertain” backdrop, with the economy expected to enter a recession this year and not recover until next year in a worst-case scenario
The Fed is also to publish its Beige Book on Wednesday.
First quarter earnings season kicks off with the six largest banks in the U.S., including JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC) and Goldman Sachs (NYSE:GS) set to report.
Investors will be watching for any indications that banks are scaling back on lending, which could be a sign of a prolonged recession. Also, the Federal Reserve said Thursday it will be working directly with banks to deliver much of its financial support to businesses.
Pharmaceutical giant Johnson & Johnson (NYSE:JNJ) is due to report on Tuesday, while Abbott Laboratories (NYSE:ABT) is set to report on Thursday.
Earnings reports will also give an insight into just how badly retailers such as Bed Bath & Beyond (NASDAQ:BBBY), which is due to report on Wednesday, have been hit.
Oil output cut deal hangs in the balance
The biggest supply cut ever contemplated by the world’s top oil producers is hanging in the balance with Mexico resisting pressure from Saudi Arabia to sign up to global cuts worth nearly a quarter of output for participating countries.
The cuts are aimed at boosting prices from their lowest level in decades. Oil prices have collapsed as the coronavirus epidemic locked down economies around the world, decimating fuel demand and Saudi Arabia and Russia flooded the market in a price war.
The refusal by Mexican President Andres Manuel Lopez Obrador to compromise his plan to revive state oil company Pemex by agreeing to the cuts has shone the global spotlight on Mexico and angered Saudi Arabia.
In a compromise hammered out with U.S. President Donald Trump, Lopez Obrador said on Friday the United States had offered to cut an additional 250,000 bpd on Mexico’s behalf, bringing them close to the target.
However, Saudi Arabia – the heavyweight of global oil diplomacy – has balked at that and dug in its heels, despite some other producers from the group of OPEC nations and their allies – known as OPEC+ – calling for the cuts to go ahead regardless.
OPEC+ made its commitment to cut a record 10 million barrels a day conditional on Mexico’s agreement.