Concerns about the economic impact of the continued lockdown of the US economy saw US stocks roll over on Friday after the latest US non-farm payrolls jobs report saw 701,000 jobs lost in March, and that’s even before the 9.9m new weekly jobless claims of the last two weeks are taken into account.

With another two weeks of claims data set to go into the April jobs report, the next set of numbers due to be released in May are likely to be in the millions.

Friday’s non-farms number was also much worse than expected, while the unemployment rate shot up to 4.4%, with the leisure and hospitality sectors of the economy bearing the brunt of the job losses. What was even more surprising about the job losses was the fact that weekly jobless claims for those two weeks didn’t appear to reflect these layoffs.

While there was little to cheer in the US jobs report, things were little better in the latest European data, with services sector activity cratering sharply in March with Spain and Italy bearing the brunt, knocking equity markets lower on the day, and also finishing lower on the week.

Despite the lack of positive news, European stocks still managed to hold on to a good portion of the gains we saw in the wake of the rebounds off the lows that we saw in March. That in itself is encouraging given how bad last week’s data turned out to be.

As we head into a new week markets appear to be taking encouragement from the fact that death rates appear to be plateauing across Europe, with Spain, Italy, France and UK all seeing declines in their Sunday numbers. There was also optimism in New York after the death rate also fell, though it’s way too early to draw any conclusions at this early stage for the US, as infections there continue to rise sharply. Italy reported its lowest death rate for over two weeks yesterday, and while the number is still tragically high, at least it is heading in the right direction.

Despite these declines in death rates there is no indication that any of the countries are in the mood to signal when the respective lockdowns are likely to be lifted. Last week Italy extended its lockdown period to 13 April, while Spain’s prime minister, Pedro Sanchez, announced an extension to 25 April. France has also extended its lockdown and the UK is likely to do the same later this week.

In any case the slowing death rate over the weekend has offered up a ray of hope for markets more generally, helping Asia markets to start the week on the front foot, while markets here in Europe also look set to open higher.      

On the data front it's set to be a fairly low-key start to the week with Germany factory orders data for February set to show a decline of 2.5% for February, after a 5.5% rise in January. This is likely to be the beginning of the slowdown process for German industry, given that China was locked down for all of February and as such would have been closed to German exporters.   

In the UK we have the latest new car registrations for March, and after the 2.9% decline in February we look set to see an even sharper fall here, given that the UK lockdown started 10 days before the end of the month. The latest construction PMI is also expected to see a sharp fall from the 52.6 reading seen in February, with a reading of 44 expected.

This seems somewhat optimistic given the sharp falls seen in manufacturing and services for the same month. The latest consumer confidence numbers also gave a negative insight into how ordinary people view the outlook going forward, coming in at -34, the lowest number since 2008 and the financial crisis. There was little reaction to the news that UK prime minister, Boris Johnson, checked himself into hospital for tests due to an inability to shake off the effects of the coronavirus.

After the huge surge at the end of last week, oil prices have dropped back sharply after the news over the weekend that the Opec+ meeting later today has been postponed until Thursday. It had been hoped that it would be able deliver some tangible progress on putting a floor under oil prices that have seen eye-watering declines in the last five weeks. The comments from President Trump that the Russians and the Saudis might be persuaded to cut production by 10m barrels a day helped prices rally from 18-year lows, to their highest levels in two weeks in the space of 36 hours.

There is certainly plenty to worry about for US shale producers, which have breakeven prices near to $50 a barrel and who the Saudis want to crush. Oil storage facilities are already filling up and there is plenty for markets to remain nervous about. The main concern remains that even with some form of agreement on a cut, it may well not be enough to push prices up much higher from current levels with demand on the floor, which means we could get widespread defaults in the US shale sector in the coming weeks. While the original spat was originally confined to Russia and Saudi Arabia, the US has also become involved given the huge amounts of oil its shale industry also pumps out.

Any agreement among the oil-producing countries would likely have to include US shale producers, something that thus far the US has shown little interest in becoming involved with. In fact President Trump has shown little inclination that he has any time for Opec, and could find it politically difficult on an election year to agree to anything that might be considered as bad for US interests. The involvement of the US in the negotiations certainly helps to add another uncertainty to an already fractious relationship between the Saudis and Russia. The reality is that in the absence of any agreement, cuts in production would have to happen anyway, the only difference is that they would happen out of necessity as storage capacity runs out.

EUR/USD – after 5 days of declines finding some support at the 1.0770/80 area, which if broken has the potential to open up the previous lows at 1.0630. We need to see a move back above the 1.0920 area to stabilise.  

GBP/USD – briefly slipped below the 1.2240 area before rebounding, from the 1.2200 area. As long as we hold above the 1.2200 area, we can see a recovery back to the highs last week at 1.2475. The 1.2500 area remains a key resistance, and obstacle to a move 1.2775.

EUR/GBP – finding support at the 200-day MA at 0.8740. A break of 0.8720 has the potential to retarget the 0.8600 area. Rebounds need to stay below the 0.8900 area to keep downside momentum intact.

USD/JPY – found some support just above the 106.80 area last week. This needs to hold to retarget further gains back towards the 108.70 area, with resistance behind that at the 109.20 level.

 

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