Geoffrey Smith 

Investing.com — A small amount of Chinese monetary ease triggers a temporary bounce in the U.S. stocks still remain on track for their lowest weekly close in three years, March 2021. The Senate passed the bill on Thursday and President Joe Biden expects to sign it. It is already at a record four year high. Europe continues to see worse economic data, with German producer prices inflation reaching 33%. As markets continue to struggle between fear of falling demand and tight supplies, oil continues its slide. This is what you should know about financial markets Friday 20 May.

1. Chinese rate cut

Although the Chinese central banking kept their one-year interest rate unchanged, its benchmark 5-year mortgage rate was determined from contributions by a number of lenders.

This news was seen as a sign of an easing in monetary policy. It came after weeks of growing fear of the U.S. economic recession.  The Chinese stock indexes rose as high as 2.5%, while the strengthening by 0.8%.

The one-year prime rates are more significant as they have a greater direct effect on the Chinese economy. A reduction in the five-year rate of mortgage will not solve a housing crisis whose affordability ratios remain low.

The PBoC’s relative inaction is remarkable in the face of what appears to be increasing pressure from elsewhere in the government on it to support the economy. The head of its monetary policy department was removed from his post earlier this week, under investigation for ““suspected serious violation of laws and discipline.”

At the corporate level, luxury stocks in Europe underperformed after Richemont (SIX:) chairman Johann Rupert warned that China’s economic problems will last “longer than people think”. Up to 40% Richemont The country’s boutiques are closed at the moment. 

Two Ukraine Aid Bill passes, ruble reaches four-year peak

Following the withdrawal of opposition from Republican Senators, President Joe Biden expects to sign a $40 billion bill to aid Ukraine.

As G7 finance ministers, central bank chiefs, and G7 finance ministers gather to discuss how to support Ukraine during a conflict that appears to continue for months, this move will be made. Russian forces may have already begun to dig in defense of captured territories in the north and east. Ukraine’s financing needs are estimated at as much as $7 billion a month.

The official ruble rate in Russia has reached its highest level since 2018 while the dollar index is at its lowest point. That’s a result largely of a swelling current account surplus, based on the reality that while it is still collecting dollars for its energy exports, it is effectively unable to import a broad range of consumer and industrial goods. While the restrictions on currency conversion were eased by the central bank on Thursday, they left in place those regarding dollars and euros.

3. Stocks to Open Higher; Palo Alto Earnings Lighten the Mood

U.S. stocks open higher this Friday thanks to the Chinese news. But, it looks like a temporary bounce due to the absence of major changes in the fundamentals.

These points had risen to 292 (or 0.9%) by 6:20 ET (1020 GMT) and 1.1% respectively, as well as 1.5%.

The S&P is still on course, however, to end a week below 4,000 points for the first time since March 2021, after two Federal Reserve officials from opposing ends of the policy spectrum – Esther George and Neel Kashkari – both played down the influence of stock market developments on the Fed’s thinking on Thursday.

Stocks in focus are likely to include Palo Alto Networks (NASDAQ:), after the cyber-security’s earnings provided some much-needed relief from retail sector’s doom and gloom reports after the bell on Thursday.

Foot locker Before the open, Hamilton (NYSE:), and Booz Allen (NYSE.:) Hamilton topped a small earnings list.

4. European data shocks

Europe’s economic data continue to look more and more alarming by the day.

GfK released an earlier index that showed U.K. consumer confidence at an all time low. It was lower than the levels recorded during the 2008/9 financial crisis.  With unemployment at the lowest point in 50 years, it remains to be seen whether that could really be true. U.K. retail sales, meanwhile, bounced surprisingly in April but didn’t buck their longer-term downward trend.

What is less open to question is that inflationary pressures in the Eurozone’s largest economy show no sign of easing. German producer price inflation rose to 33.5% in April. The monthly growth was only 2.8%, which is double the expected rate.

The European Central Bank’s (usually dovish) chief economist Philip Lane may comment on those developments when he speaks at 8 AM ET.

5. Oil drifts; rig count, CFTC data eyed

Crude oil prices drifted on Friday and are on course to end the week flat, as tentative hopes for the end of Shanghai’s Covid-19 lockdown, and the awareness that U.S. gasoline stocks are at their lowest for any May in 14 years, are balanced by fears for the demand outlook, with gasoline prices stuck at record highs and signs of consumer fatigue visible in nearly every retailer’s report this week.

Futures rose 0.1% to $109.94 per barrel by 6:30 AM ET. They were 0.3% higher at $112.32 at the same time. Both blends will end the week in modest gains.

Baker Hughes’ rig count and the CFTC’s positions data round off the week later.