While European markets struggled to make gains yesterday, markets in the US had no such trouble, finishing the day strongly higher. One reason was political in nature, namely the official withdrawal of Bernie Sanders from the Democratic nomination process to stand as President, though this only served to confirm the inevitable. His candidacy had been holed below the waterline weeks ago.
Another key driver was a hope that we could well see a turnaround in reported infection cases after this week, in the wake of positive comments from Anthony Fauci, the director of the US National Institute of Allergy and Infectious Diseases, along with rising expectations of a fresh round of fiscal stimulus measures specifically targeted at small businesses, hospitals, as well as American families.
The latest Fed minutes reinforced the positive tone as it showed that there was little appetite amongst any of the FOMC to move rates from their current position, just above 0%. The overall concern amongst Fed policymakers was of significant concern about a rapid deterioration in financial conditions. The wide-ranging steps taken since the last meeting would appear to reflect that concern, despite concerns that the rapid change of tack would spook the markets.
This was certainly a compelling concern, in fact it could be argued that the Fed’s early actions did have that effect, however that was then and this is now, and the picture has altered markedly, with millions of people thrown out of work in the space of two weeks, with another 5 5m more expected today, when the latest set of weekly jobless claims are announced. Another 6m job losses today would add to the almost 10m of the previous two weeks, potentially helping push US unemployment up towards, and through the 10% level by the time of the next payrolls report.
The sharp rise in unemployment levels across the world is a clear and present concern for some in the markets, who take the not unreasonable view that markets are underestimating the economic damage that is about to be unleashed on the US and the global economy.
Last night’s gains in US markets look set to manifest themselves with a slightly firmer open for markets in Europe, with investors this side of the pond anxious about the inability of EU finance ministers to agree on a €500bn pandemic relief fund for whole of Europe, but in particular, the worst hit regions of Italy and Spain.
Under ordinary circumstances it would have been an important day for UK data with the release of the latest GDP numbers for the month of February, along with industrial and manufacturing production data. Given recent events these aren’t normal circumstances, which means today’s expected rise of 0.1% will probably be the high-water mark for the UK economy for months to come.
With the services sector the main contributor to the UK economy over the past few years, the decimation set to be seen in the coming months is likely to wipe out all of the economic gains of the last ten years. Despite this reality the pound is holding up reasonably well despite the incapacitation of PM Boris Johnson, as well as uncertainty as to whether the UK government will extend the lockdown. The reality is whatever the reasons as to why the UK government is procrastinating about extending the lockdown, it will be extended next week, probably until the end of the month, given the current path of the data.
In terms of today’s economic data, the reality is that any data pre last month is pretty much worthless, given the implosion in the economy we’ve seen in the past few weeks.
To get a better indication of where we are now, a look at today’s Canada jobs report is likely to offer another early bellwether of what to expect in the coming months in terms of the upcoming economic carnage about to get unleashed on the global economy.
In February the Canadian economy added 30k new jobs, however we already know from the jobless claims data in Canada that today’s March report is likely to wipe out all of those gains, as well as the gains from the last ten years. Expectations are for 500k jobs to be lost, a huge number in comparison to the size of the Canadian jobs market, which is about 19m people. A number of this size would push the Canadian unemployment rate up from 5.6% towards 8% to levels last seen in 2010.
It’s also set up to be a big day for oil markets as pressure builds on Saudi Arabia and Russia to agree a deal on reducing oil output. Comments from the Algerian oil minister as the Kuwaiti oil minister in the last 24 hours suggest a reduction of 10-15m barrels could be on the cards.
Pressure has also been building on the Saudis after a number of senior US Republican senators wrote to the Saudi Crown Prince MBS urging him to cut a deal in order to help protect thousands of American workers, citing the two countries strong economic and military co-operation. The implication being, perhaps, that a failure to act might make the relationship slightly more difficult.
EURUSD – the failure to crack the 1.0920/30 area has seen the euro slip back. This needs to break to target a move towards the 1.1000 area. Pullbacks are likely to find support at the 1.0770/80 area, and the lows this week. If we break below this level, we could slip back towards the previous lows at 1.0630.
GBPUSD – having rebounded from the 1.2165 area earlier this week, we could head back to the highs last week at 1.2475. The 1.2500 area remains a key resistance, and obstacle to a move 1.2775.
EURGBP – appears to be slipping back towards the 200-day MA at 0.8740, where we have some decent support. This needs to hold if we are to retest the 0.8900 level. A break of 0.8720 has the potential to retarget the 0.8600 area.
USDJPY – the 109.20 area remains a key resistance. The failure to move up through 109.30 earlier this week keeps the onus for a move back towards 108.20 area. Long term support remains down near the 106.80 area which we saw last week.
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