Another positive day for US markets yesterday saw the Nasdaq wipe out its losses for the year, as the divergence between Wall Street and Main Street became ever wider. It almost appears that the worse the US data is, the higher stocks seem to go, with US markets set for another strong open, as we look towards today’s April US payrolls report.
It is important to note that we remain below the April peaks and the 200-day MA, for the Dow and S&P500 which means, on a technical basis, we remain in the range we’ve been in for the past couple of weeks.
Yesterday we saw another figure above the 3m mark for weekly jobless claims bringing the trail of economic misery for the US economy to over 30m people who have claimed for unemployment benefit in the last six weeks.
Today’s US payrolls report will be symbolic in that this will be the first payrolls report that will fully start to crystallise the scale of the economic hit to the US labour market. We got a flavour of that earlier this week with the ADP payrolls numbers which showed 20.2m people lost their jobs in April, and the minimum expectation of that is for at least a similar figure to the ADP number.
Taking into account the rise in jobless claims over the same period, would give a number in excess of 22m jobs, which would bring the number close to yesterday’s continuing claims number of 22.6m people.
Even if the number comes in higher than expected we already know that there is another 10m jobs set to be added to this number, which is likely to come out in the May payrolls report, which in turn would push the unemployment rate up close to, and potentially beyond the 20% level.
It is important not to underplay the scale of this shock to the US economy and perhaps helps to explain why the US administration is so keen to get people thinking, about returning to work, especially since services makes up such a proportion of the US economy.
The record lows in the employment and new orders component of the ISM non-manufacturing report for April speak to that concern.
There is certainly a debate to be had around the horrifying death rate as a result of the spread of the virus, alongside how the lockdowns are causing damage to the US economy, in which the longer the shutdown lasts could well cause even more deaths on a longer timeline.
Unfortunately, in these febrile times it’s difficult to have that conversation as people seem unable to be rational about the choices being faced. Deaths are bad, whether they are caused by the virus, or a prolonged economic depression that is caused by a lockdown that goes on for too long.
People should not be gaslighted for expressing that concern and looking at the costs of adopting a different approach. The fact remains that a lot of the 33m jobless claims we’ve seen in the last few weeks won’t be reversed quickly, if at all.
The travel, retail and aerospace sector, alongside scores of supply chain positions, is likely to see thousands of jobs disappear for ever, and while central banks have prevented a medical crisis from turn into a crisis of the financial system, the fact remains recent events will be a financial crisis for a lot of people who have bills to pay, through no fault of their own.
We also have the Canadian jobs report for April, and that is expected to be equally as ugly, with 4m jobs expected to be lost, and an unemployment rate that is predicted to rise from 7.8% to 18.1%, easily eclipsing the previous record high of 1982 which saw the rate reach 13.1% in December of that year.
EURUSD – still looks heavy with the April lows at 1.0725, the next key support. The highs two weeks ago, and the 200-day MA at 1.1035 are a key barrier to further upside. This remains the next barrier for a move towards 1.1200.
GBPUSD – we’ve moved down towards the 1.2245 area, with a break potentially opening up a move towards the 1.2000 area. We now have resistance up close the highs this week at 1.2420.
EURGBP – has continued to find support above the 0.8670/80 area which remains a key barrier to further losses. While it holds the potential for further a rebound to the highs this week at 0.8820. Only below 0.8670 argues for a return to the 0.8620 level.
USDJPY – continues to look soft but has found support just below 106.00. As such we look set for further losses towards 105.20 initially, while below 106.80 interim resistance. We need to see a recovery above 107.50 to stabilise.