Much like last week, Fed Chair Powell's testimony before the Senate Banking Committee on Tuesday may overshadow what’s likely to be further weakness in the week's economic data – something that, for the most part, the market has become incredibly desensitized to. In any case, Chair Powell will appear with Treasury Secretary Mnuchin to provide the first quarterly report on the CARES Act.
The Chair's speech last week sounded off alarm bells about bankruptcies and permanent job loss, so he may even strike a more cautionary tone on the outlook to lawmakers in an effort to reinforce the need for coordinated efforts.
The FOMC minutes will be released, but I’m not sure how much interest they’ll garner, given the run of Fed speak has been of the super cautionary variety, making the minutes a bit stale.
The main focus once again will be on jobless claims and whether unemployment is still growing or decreasing.
Other data releases to watch out for next week will be the flash PMIs for May from around the world on Thursday and Friday. In April, as the surveys were fully covered by the lockdowns, the numbers fell even further than they had in March, with record lows seen for composite PMIs on both sides of the Atlantic.
The question for May will be whether the April readings represented rock bottom as countries gradually began to ease their respective lockdowns, or whether they can fall lower still.
In summary, while risk assets have been buoyant, we expect policymakers to strike a more cautious tone, emphasizing that we’re not out of the woods yet and there’ll be more stimulus in the offing.
Asia Week ahead: Thailand focus
Although the regional markets are expected to recover in fits and starts, focus will fall on Thailand this week – one of the hardest-hit economies in Asia.
Economists widely expect Thailand to report a significant contraction in Q1 GDP (4.5-5 %), marking its steepest contraction since the Asian Financial Crisis. A collapse was triggered due to a drop in tourism-related activities.
Tourism revenues fell 40.4% yoy in Q1 vs. +1.9% in Q4. Worse still, lockdowns around the world point to an even more tremendous external demand shock in Q2, likely resulting in two consecutive quarters of contraction in GDP, despite a phased removal of its lockdown.
Although Thailand will emerge from the recession in 2H, its path to full recovery will be a long and bumpy one that’s closely linked to effective antiviral drugs and vaccines against Covid-19 which would enable confidence in a rebound in tourism and other related activities. In response, traders are expecting further monetary support from the Bank of Thailand next week.
China NPC begins next week
The annual National People's Congress (NPC) will begin on 22 May, with Premier Li's Government Work Report speech one of the critical watchpoints. The market focus will be mostly on whether the government drops the growth target for the year, which, if it happens, would be the first time since the 1970s. It’s widely expected the authorities to announce a sizeable fiscal stimulus of ~6% of GDP.
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Sometimes you have to throw conventional wisdom out the door and just let the good times roll