US markets picked up from where they left off at the end of last week closing modestly higher yesterday, with the S&P500 pushing ever closer to its previous highs of earlier this year.
The Nasdaq however found progress slightly more difficult to sustain, with investors having one eye on the ongoing political shenanigans on Capitol Hill, and the hope that the executive orders signed by the US President late on Friday could well be a starting point for further stimulus measures, as opposed to an end point.
US Treasury Secretary Steven Mnuchin indicated that he was prepared to engage with Democrat lawmakers with a view to coming to some form of agreement, and while some Democrats have indicated that they may present a legal challenge to the President’s executive order, it’s not likely to be something that would play well politically less than 100 days before an election.
As such markets are assuming that an agreement is likely to be reached, it’s just a question of when and not if, and it is on this assumption that we see markets edging higher.
On a fairly quiet session for markets in Europe, upside progress was equally constrained, with some concerns over potential escalations between the US and China, after Beijing responded with sanctions against senior Republican senators, including Marco Rubio and Ted Cruz, in retaliation for the US actions last week for sanctioning Hong Kong leader Carrie Lam, and other Chinese officials.
In quiet holiday markets, todays European open is expected to see a similarly cautious, but positive start, following on from a similarly positive Asia session, with the latest unemployment numbers from the UK the main focus of attention, ahead of this week’s preliminary Q2 GDP.
It’s become readily apparent that the ILO unemployment numbers bear no relation to the actual number of people out of work, or who are likely to lose their jobs in the weeks and months ahead. At 3.9% for the three months to May, they don’t reflect the number of employees who are on furlough, and as such are not looking for work, though we are expected to see today’s headline number rise to 4.2%.
In the June jobless claims numbers, we got a better idea of the overall unemployment picture at 7.3%, which saw a reduction of 0.5% as more shops reopened as lockdown restrictions were eased.
This may well improve further in the July numbers, as hair salons, and some pubs and restaurants re-opened, however with a lot of major companies announcing thousands of job losses in the past month or so, you could see the claims number start to edge up again, even as the UK economy continues its re-opening path.
On a three-month basis the number of jobs available is expected to see a reduction of 300k in the three months to June, on top of the 125k reduction seen in May.
To get a better idea of what the jobs picture looks like is comparing the number of people on the payroll before the March lockdown. This was 660k lower in June, so it seems inevitable that this comparison will continue to be used as a useful benchmark.
Overnight we saw the latest British Retail sales monitor for July show a rise of 4.3% year on year, another decent reading, as consumer spending continues to recover post lockdown, however footfall in the High Street was still subdued.
Ina sign that economic sentiment is also subsiding in Germany the latest ZEW survey for August is expected to slip slightly to 55, from 59.3.
EURUSD – the euro continues to look a little on the soft side, with the prospect of a move towards the 1.1680 area. A fall through here has the potential to target the 1.1580 area. Rebounds need to stay below the 1.1830 area.
GBPUSD – currently finding support just above the 1.3000 area, with firmer support at the 1.2980 area. A break below 1.2980 opens up the prospect of a move towards the 1.2770 area. Resistance remains at last weeks highs, just below 1.3200.
EURGBP – while above the 0.8975/80 support area the risk remains for a move rebound back to the 0.9080 area. Below the 0.8980 area opens the prospect of a move towards 0.8920.
USDJPY – the move higher from Friday needs to get above the 106.50 area to reopen a move back towards 107.20. The 105.20 area is a key support and needs to hold to prevent a move towards the 104.50 area.