Week ahead: Will the stock market rally continue? And will the NFP trigger another bout of turbulence?

The coronavirus outbreak and the economic fallout will continue to be the main driver of the markets this week. Although the number of cases in China is falling, the situation is worsening outside the Asian nation. The US overtook China last week as the nation with the most confirmed virus cases. Numbers of cases in European countries escalated. Thus, Italy extended the lockdown and many other countries are expected to follow suit.

In an attempt to stabilize financial markets and negate some of the economic damage caused by the pandemic, the Fed promised last Monday to buy unlimited amounts of Treasury bonds and mortgage backed securities. The implicit promise to flood the market with dollars for as long as this crisis lasts took the wind of out of the reserve currency’s sails that continued it’s downfall all along the week and closed down 3.25%. And Tuesday overnight Senate Republicans and Democrats announced that they finally reached a deal on a $2 trillion rescue package. The stock market cheered the news and staged a heroic recovery, and extended its gains most probably driven by quarter-end re-balancing flows. Since Wednesday is the quarter end, many large pension funds need to re-balance their books so that they have the mandated US Dollar amount of equities and bonds in their portfolios. With lower equity prices, funds may have been selling bonds and buying stocks, pushing indices higher. However, fear is still in the air and the mood could turn around at any time and the stock market rebound might just be a bear market rally. For the fear to subside and for the markets to truly turn around, investors might need some medical innovation first, which doesn’t seem to be on the cards anytime soon.

So markets are expected to remain sensitive to any virus-related news and central banks and government decisions, even as most central banks has now almost exhausted their conventional policy ammunition.

And even though Most data releases were ignored in the last couple of weeks, the manufacturing PMIs out of China, and the ISM PMIs together with the latest jobs report from the United States may attract attention, since they are expected to reveal how much economic damage the virus has already inflicted.

China’s manufacturing PMI is expected to rise to 45, as the country started to re-open after a two-month long lockdown.

Last week’s jobless claims numbers were astonishing, implying a surge in unemployment in the months ahead, as many industries shut down and businesses closed, large and small businesses were forced to layoff workers. So the NFP report due on Friday is expected to be gloomy. The US economy is expected to have lost 100k jobs in March while the unemployment rate is expected to jump to 3.9%. And a shockingly bad report is expected to trigger another bout of turbulence in the markets.

In brief, expected economic highlights include:

Tuesday:

• China Manufacturing PMI (Mar) (01:00 GMT)
• UK GDP (YoY) (Q4) (06:00 GMT)
• UK GDP (QoQ) (Q4) (06:00 GMT)
• EU CPI (YoY) (Mar) (09:00 GMT)
• Canada GDP (MoM) (Jan) (12:30 GMT)
• US CB Consumer Confidence (Mar) (14:00 GMT)

Wednesday:       

• China Caixin Manufacturing PMI (Mar) (01:45 GMT)
• UK Manufacturing PMI (Mar) (08:30 GMT)
• US ADP Nonfarm Employment Change (12:15 GMT)
• US ISM Manufacturing PMI (Mar) (14:00 GMT)
• Crude Oil Inventories (14:30 GMT)

Thursday:

• UK Construction PMI (Mar) (08:30 GMT)
• US Initial Jobless Claims (12:30 GMT)

Friday:

• Australia Retail Sales (MoM) (Feb) (00:30 GMT)
• UK Composite PMI (Mar) (08:30 GMT)
• UK Services PMI (Mar) (08:30 GMT)
• US Nonfarm Payrolls (Mar) (12:30 GMT)
• US Unemployment Rate (Mar) (12:30 GMT)
• US ISM Non-Manufacturing PMI (Mar) (14:00 GMT)