Equity markets in continental Europe and the US closed higher on Friday despite the horrendous employment data from the US. 

The London stock market was closed on Friday as the UK celebrated VE day. Lately, dealers have been immune to terrible economic updates, as the focus has been on countries loosening their lockdown restrictions.

The shocking moves that were seen in global equity markets in February and March reflected the views that economies were to be severely hit by the Covid-19 crisis, but in recent weeks a number of countries have taken steps to reopen aspects of their economies and that progress has fuelled the bullish sentiment in equities. Yesterday, Prime Minister Johnson mapped out plans to loosen the UK’s lockdown restrictions. Workers in construction and manufacturing could potentially recommence work in the near term, so that is likely to boost investment confidence in London-listed stocks.

Equity markets in Asia gained ground overnight on the back of optimism in relation to countries loosening their lockdown restrictions, and in turn European indices are tipped to open higher. South Korea and Germany reported an increase in new infections in the wake of their restrictions being eased. This is something that traders should be mindful of as it might curtail the reopening of other economies for fear of a second wave of cases.     

The US jobs report at the end of last week was a painful affair. The headline non-farm payrolls report showed that 20.5 million jobs were lost in April, while economists were expecting 22 million jobs to have been lost. The unemployment rate surged from 4.4% in March to 14.7% in April, but the consensus estimate was 16%. At the height of the credit crisis, the unemployment rate was just over 10%. The jobless rate is now on a par with levels last seen in the 1940s.

The annual average earnings rate jumped to 7.9% from 3.3%, but the figures are skewed towards relatively highly paid workers who are will working amid the lockdowns. The report only takes account of jobs that are still being carried out, so when a huge chunk of jobs are removed from the equation – largely in hospitality and tourism – the average is pushed up. Before the coronavirus, the earnings metric was closely watched but in light of the current situation it has become less relevant. For the next few months, the rate of change in the headline non-farm reading and the unemployment rate will be in focus. Last week, the initial jobless claims reading was 3 million, and it was the fifth week in a row it declined, showing the rate of claim has slowed.

Trade relations between the US and China were in play last week, and even though there were some heightened tensions initially, the relationship was in a better condition by the end of the week. Steve Mnuchin, the US Treasury Secretary, talked to China’s Vice Premier Liu over the phone, and the two discussed the health crisis as well as the economy. It is believed the two countries will move towards implementing the term of phase one of their trade deal in a timely fashion.

The update assisted confidence in equity markets, but seeing as President Trump is known to be volatile at the best of times, it is possible he might pick a fight with Beijing again in an effort to show that he is putting America first. The Donald has a presidential election to fight later this year, so China might find itself in the line of fire.   

Canada also announced their jobs report last Friday too. The unemployment rate for April rose to 13%, but that was a great deal below the 18% consensus estimate. The employment change tumbled by 1.99 million, and roughly 75% of the jobs lost were full-time jobs, so that will hit the Canadian economy even harder.  

The trade data from Germany painted a negative picture of internal and external demand. In March, exports fell by 11.8%, and that was far worse than the 5% fall that economists were expecting. Imports dropped by 5%. Germany is a major exporter so the sharp fall in exports underlines the weakness in global demand.

Christine Lagarde, the head of the ECB, called upon European leaders to come up with a ‘swift, sizeable and symmetrical’ financial plan to help the eurozone economy. The plea was made on Friday, and the central banker is keen to get a plan in place sooner rather than later. EU member states are still divided over how to respond to the crisis. A big point of contention is how many grants will be dished out versus how many loans will be issued. Broadly speaking, southern economies like Italy would prefer a higher portion of grants, while northern countries like The Netherlands would favour the issuance of loans. While the internal divisions remain, the bloc and the euro are likely to remain under strain.    

The oil market has pushed higher in the past couple of weeks as US oil producers have been cutting back on output. The latest Baker Hughes report showed the number of active oil and gasoline rigs in the US tumbled by 34 to 374 – an all-time low. In addition to that, the optimism surrounding the reopening of some economies has given traders hope that demand will tick up.

Gold saw a jump in volatility on the back of the US non-farm payrolls report being announced, and the metal ended up drifting lower on Friday afternoon, but it still finished above the $1,700 mark. In the past few weeks gold has lacked direction. Now that more countries are easing lockdown restrictions, demand for gold might dip as some traders are keen to take on more risk and buy stocks.    

At 9am (UK time) Italian industrial production will be posted and the March report is expected to be -20%, while the February reading saw 1.2% growth.

EUR/USD – has been range bound recently and a break below the 1.0768 area should pave the way for 1.0636 to be tested. A move higher from here might run into resistance at 1.1000.      

GBP/USD – has also lacked direction recently, but while it holds above the 50-day moving average at 1.2389, the bias should remain to the upside. The 200-day moving average at 1.2649 might act as resistance. A move through 1.2389 might see it target 1.2165.

EUR/GBP – while it holds above the 100-day moving average at 0.8656, the bias might remain to the upside, and 0.8865 might act as resistance. A break through 0.8656 might pave the way for 0.8600 to be tested.

USD/JPY – has been pushing lower since March and a break below 106.00 might see it target 104.00. 108.22, the 200-day moving average, might act as resistance.

 

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