Another decent jobs report proved to be the catalyst for US markets to finish the week with another strong finish. The Nasdaq, as has been its wont in recent days, hit yet another all-time high, while the S&P 500 closed at its highest weekly finish since the beginning of June.
Asia markets have continued this positive vibe, helped by the latest China Caixin services PMI for June which came in at 58.4, its best rate of expansion in over 10 years, and up from 53.2 in May. This vibe doesn’t appear to be translating to an upward lift for European markets this morning, with the result that the markets here in Europe look set to open slightly lower. This maybe isn’t so surprising given that markets look set for a positive week in any case, while volumes could well be lower in the absence of US markets today, as they celebrate the 4 July Independence day holiday.
Yesterday we saw a gain of 4.8m jobs in the US non-farm payrolls, well above expectations of a 3m gain, and an unemployment rate that fell back to 11.1%, from 13.3%, which was very well received. Even better was a fall in the underemployment rate from 21.2% to 18%, as furloughed workers returned to their jobs, while the participation rate rose from 60.8% to 61.5%.
Despite the decent numbers, which President Trump trumpeted from the rooftops, there was more than a whiff of underlying caution around the numbers, as weekly jobless claims saw a rise of 1.4m, with continuing claims also rising slightly to 19.29m, from the week before. The caution is well warranted given a continued rise in US virus cases, as they rose at their fastest rate since 9 May, and the fact that these non-farm payrolls numbers are only up to the second week of June.
This means they don’t take into account the recent headlines around the rise in infection rates in the US sunbelt, which has complicated the jobs and recovery picture enormously, particularly with respect to the reopening of the economies in California, Arizona, Texas and Florida. The delays being announced to reopening plans in these states, and others, could prompt the re-furloughing of recently returned workers to the workforce, and call a halt to the recent rebound in some parts of the US economy, where the loss of jobs has been most keenly felt, namely in services, where most of yesterday’s jobs gains came from.
As an early warning, the bigger than expected rise in weekly jobless claims could be the canary in the coalmine as regards re-furloughing as various businesses delay their plans to reopen. It’s also important to remember, that despite the gains seen in payrolls over the last two months, we still have 14m more Americans out of work, according to the Bureau for Labour Statistics than was the case in February.
Back in Europe, in what is likely to be a fairly low key end to the week in the absence of US markets, we will get a further insight into the progress in the restarting of the European economy, with the latest services PMIs for Spain, Italy, France, Germany and the UK.
After the horror show of the recent record low levels in April’s services purchasing manager numbers, there’s been a steady recovery, with the rebound in May expected to gain further traction in the June data, as the various economies continue their reopening processes.
Last week’s flash PMIs from Germany, France and the UK would appear to bear this out, despite concerns about a second wave of infections prompting some concern. The biggest fear remains around the tourism sector for Spain and Italy, who rely so much on tourism in their services sector, and who are accelerating the opening of their economies to try and generate some form of revenue this year.
The flash PMIs showed a continuation of the improvements from May, and are expected to come in at 50.3, 45.8 and 47 respectively for Germany, France and the UK, though there could be upward adjustments. Spain and Italy are also expected to improve from 27.9 and 28.9 respectively in May, to 46 and 46.9 respectively, but the figures won’t change the prospect of a significant economic contraction in Q2.
Here in the UK, preparations are being made for the reopening of another large swathe of the UK economy tomorrow, in what is becoming called Super Saturday, though there are some concerns that the government may be acting too hastily.
EUR/USD – rebounds continue to look shallow failing at the 1.1300 area yesterday. A break below 1.1160 potentially opens up a return to the 1.1020 area and the 50, and 200-day MA’s. Above the 1.1350 area retargets the highs from June at 1.1425.
GBP/USD – failed to overcome the 1.2540 level yesterday, and has since slipped back. Needs to hold above the 1.2420 area to prevent a return to the lows at 1.2215. Only a break below targets a move back to the May lows at 1.2075. A move through 1.2550 retargets the 1.2800 area.
EUR/GBP – currently looking a little soft and could head back towards trend line support from the lows this year, currently at 0.8995, after the failure at the 0.9180 level and reversal day. Below the 0.8980 area could well see a move towards 0.8920. While above the 0.8990/0.9000 area the bias remains for a move back to the 0.9240 area.
USD/JPY – stuck at the moment below the 108.00 area, which is currently resistance. While below 108.00 the risk is for a move back towards the 107.20 area.