Overnight data once again painted a stronger than forecast economic picture. The market reaction was complicated by the relationship between the stronger economic outlook and the diminishing potential for further central bank support measures. Bond sold off, as well as stocks, and the recent rotation away from tech shares and into cyclicals came to an abrupt halt.
Unemployment numbers for France (7.1% forecast 8.3%) and the US (new jobless claims 963,000 f/c 1,100,000) surprised analysts. Weekly new jobless claims in the US are below 1 million for the first time since the outbreak of the Covid-19 crisis. Investors were concerned that the brighter outlook reduces any pressure on the two main parties to reach agreement on an extension of fiscal support. After a brief moment in the sun, cyclical stocks fell. The Energy sector fared worse, finishing down 2% in US trading.
Despite the concerns gold made a modest move higher. The best performing asset class overnight was cryptocurrencies, bouncing back after a tough run. CMC’s All Crypto Index rose 3.4%, erasing half of the losses over the week.
Data may also drive market action today and tonight. China’s industrial production and retail sales for July are due around mid-session. Analysts expect a 5.2% year on year bounce in production, although retail sales are forecast to show just a 0.1% gain as Chinese consumers remain cautious. French inflation, and US retail sales, productivity and industrial production have potential to accelerate or extinguish the current impulse.