By Noreen Burke
Investing.com – The week will start after Saturday’s data showing a record contraction in China’s manufacturing and service sectors because of the coronavirus outbreak, underlining the extent of the potential impact on the broader global economy. Investors will also be closely watching comments from Federal Reserve policymakers this week, with the prospects of a March rate cut on the rise. Friday’s U.S. jobs report is likely to be overshadowed by the market turmoil, but the race for the Democratic U.S. presidential nomination could divert some attention from the spread of the coronavirus. OPEC is to meet later in the week and with oil prices now down 25% so far this year pressure for additional output cuts is mounting. And the Bank of Canada may surprise investors with a rate cut at its meeting on Wednesday. Here’s what you need to know to start your week.
- China PMI data to shock markets
Data on Saturday showed f in China contracted at its fastest ever in February, even worse than during the global financial crisis of 2008. The shockingly weak data is likely to add to fears that the world’s second largest economy may not rebound as quickly as investors had initially hoped.
Another report on Sunday showing that South Korean snapped a 14-month losing streak in February masked disruptions from the coronavirus, reflected outside the headline figures.
The coming days will reveal whether the outbreak is accelerating in the United States, the world’s biggest economy, how much the U.S. government is prepared to deal with an epidemic, and the economic damage in other countries.
“Right now the market is saying that this is unbounded. We don’t know what the limits are and we don’t know where it’s going to peak,” said Graham Tanaka, chief investment officer at New York-based Tanaka Capital.
- The Fed and U.S. data
Surveys of U.S. manufacturing activity from and the on Monday will give investors a chance to assess the economic impact of the virus. Friday’s U.S. nonfarm payrolls report for February will be watched for indications on the strength of the labor market before coronavirus spread more widely. The consensus forecast points to non-farm payrolls gaining , slowing from 225,000 in January.
Several Fed speakers are due to make appearances this week, Including Cleveland Fed President , St. Louis Fed chief , Dallas Fed head , Minneapolis Fed President and New York Fed President .
The likelihood of a March rate cut by the Fed has risen in the past week with the U.S. economy looking increasingly vulnerable to the outbreak. Fed Chairman Jerome Powell said Friday that the U.S. central bank will “act as appropriate” as the virus poses “evolving risks” to the economy.
- Super Tuesday
Investors will be looking ahead to Tuesday, when 14 states will cast ballots as the race for the Democratic U.S. presidential nomination intensifies.
Market watchers are waiting to see whether progressive Senator Bernie Sanders consolidates his lead or if moderates such as former Vice President Joe Biden or former New York Mayor Michael Bloomberg can make inroads.
Sanders campaign promises to break up big banks, take on drug companies and essentially abolish private insurance in favor of a single government-run plan have rattled some investors.
Shares of health insurers such as UnitedHealth Group (NYSE:) and Centene Corp. (NYSE:) have sold off in recent months amid growing concerns over the potential nomination of Sanders or fellow candidate Elizabeth Warren.
While investors have been more focused on coronavirus developments, some analysts have said Sanders’ rise in the polls also contributed to the recent sell-off. Some investors also noted that continued volatility in markets or an economic downturn could erode support for U.S. President Donald Trump.
- Bank of Canada to make preemptive rate cut?
The Bank of Canada is to hold its latest on Wednesday, the second to last such meeting before Stephen Poloz steps down as Governor.
Heightened financial market volatility amid fears over the coronavirus outbreak mean that the odds of a rate cut are rising, despite a strong domestic jobs market and inflation that is running roughly in line with the bank’s target.
Growing concern about the economic impact of protests opposing the Coastal GasLink pipeline that have severely affected the country’s rail network have also fed into expectations for a rate cut.
“The BoC has a reputation for moving early and occasionally providing surprises and we certainly think they could choose to pre-emptively cut this coming week. After all, they have much more room to offer support than most other developed markets, given their policy rate,” analysts at ING wrote.
- OPEC facing challenge of slumping demand outlook
The Organization of the Petroleum Exporting Countries and its allies including Russia – known as OPEC+ – meet in Vienna on Thursday and Friday as the spread of coronavirus around the world stokes fears that a slowing global economy will hit energy demand.
Friday saw the lowest closes for both and since December 2018. For the week, Brent lost almost 14%, its biggest weekly percentage decline since January 2016, while WTI fell over 16% in its biggest weekly percentage drop since December 2008.
“OPEC+ will have to deliver a deeper production cut as oil prices remain in freefall,” Edward Moya, senior market analyst at OANDA in New York, said in a report.
The group has already slashed oil output by 1.7 million bpd under a deal that runs to the end of March. In an initial response to counter the hit of the virus, an OPEC+ committee has recommended deepening output cuts by 600,000 bpd, but that figure is now seen as not enough by some in the group.
–Reuters contributed to this report