European markets saw another day of gains yesterday, though for most of the day it was a bit of a struggle, with the turnaround only happening in the last hour of trading, as US markets shrugged off their early day malaise to turn higher, with the Dow once again posting another record high.
The likes of the Russell 2000, and to a lesser extent the Nasdaq, lagged behind, with the US small cap index closing the day unchanged, after being over 1% lower at one stage during the day, as we look ahead to today’s US jobs report.
Asia markets have had a mixed week, with the latest China trade data for April building on what has been a fairly lacklustre start to the year from a GDP point of view, even as trade data has looked quite strong. Demand for exports saw a 30.6% rise in March, however that was largely driven by exports of PPE and other medical-related products, as well as weak base effects from a year ago when the Chinese economy was locked down. This is likely to slow in the coming months as vaccines continue to get rolled, however new variants and the rise in infections across Asia these past few weeks is still likely to keep a floor under these. April exports were expected to see a rise of 24.1%, but came in at 32.2%.
Imports, which also surged in March by 38.1%, again with base effects playing a part, maintained their resilience as a combination of weak comparatives to a year ago and improving demand saw a gain of 43.1%, beating expectations of 42.5%. Among the items that saw decent demand was commodities like iron ore and copper, while the rebound in Chinese retail saw demand for beauty products and cosmetics improve as well.
With Asia markets having a decent session, today’s European open is expected to follow suit, with a a positive open in the wake of the latest China trade data, with the main focus on the US jobs numbers for April.
Before that, we have the latest UK construction PMI for April which is expected to round off a trifecta of 60+ readings, as the beginning of Q2 gets off to a flier for the UK economy. On Tuesday we saw manufacturing post a reading of 60.9, while services posting 61.0, while the construction sector is expected to round off a hat-trick with 62.1, and a seven-year high. This optimism over the UK recovery prompted the Bank of England to upgrade its 2021 GDP forecast to 7.5% from 5% yesterday, and also adjust the amount of its weekly asset purchase programme down to £3.4bn, not that you’d know it from the way the pound reacted.
Despite a slowdown in the US jobs market at the end of last year, we’ve seen an impressive rebound with jobs gains of 166,000 and 468,000 in January and February, and then a stunning 916,000 in March. There is no question that the huge amount of fiscal support that has been pushed into the US economy over the last four months has helped in this regard, with $900bn agreed at the beginning of January, followed by a much bigger $1.9trn stimulus which was signed off in March.
Combined with the accelerated vaccination programme that is continuing apace across the US, along with a slowdown in the rise in virus cases, hospitalisations and deaths, which is also helping in terms of the US recovery, expectations for today’s April’s job numbers are now similarly elevated. Average estimates are for a number in the region of 1m, especially since weekly jobless claims are also trending lower, dropping below 500,000 a week yesterday, and a post-lockdown low, while the unemployment rate is expected to fall further, from 6% to 5.8%. This is very welcome especially since the participation rate has remained steady and actually edged up to 61.5% in March, and which is expected to move higher today, suggesting early signs that more disincentivised workers are returning to the workforce.
Some Fed officials have indicated that they want to see clear evidence of the participation rate moving much higher before considering any change in monetary policy. It was notable from Fed chair Jay Powell’s most recent press conference that the FOMC wanted to see consistently good jobs numbers over a matter of months, with constant references to “substantial further progress”. This also helps to explain why US 10-year yields are now 10bps lower from where they were a month ago, when the March jobs report dropped.
The Fed will also want to see underemployment fall further. In March we declined to 10.7% from 11.1%, so further progress will be welcomed here. All of this still needs to be set in the context of a participation rate of 63.4% over a year ago, but putting that to one side the US economy is going in the right direction, if recent ISM reports from the last couple of months are any guide. These should also be reflected in much stronger non-farm payrolls numbers as we head further into the summer months.
EUR/USD – found support just above the 1.1970 level, and has rallied back towards resistance at the 1.2080 level. A move through 1.2100 reopens the 1.2150 area. Below 1.1970 argues for a move back to the 1.1920 area.
GBP/USD – had a bit of a nothing day yesterday, lagging behind the euro but crucially still within the broader range, the base of which sits down near the 1.3800 area. Larger resistance remains at the 1.4020 area which remains a key barrier to a move back to the February peaks.
EUR/GBP – found support at the 50-day MA and 0.8620 area, rebounding back above towards the 0.8700 level. The 0.8730 area remains the key resistance area. Below support at the 0.8620 area opens up a move towards the 0.8580 area.
USD/JPY – the failure at the 109.70 area keeps the bias for a move back towards the 108.70 area, along with uptrend line support from the January lows, at 108.10 which continues to support the current move higher. Below the 107.80 area opens up the prospect of a move back towards 106.80.