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Post US jobs data momentum fades, Europe called lower

Post US jobs data momentum fades, Europe called lower

Stocks markets had a great day on Friday thanks to the US non-farm payrolls report. 

Last month, 2.5 million jobs were created in the US, while the consensus estimate was for 8 million jobs to have been lost. The previous reading was revised up so in fact 20.68 million jobs were lost in April. There is still a long way to go before the jobs market is back to the pre-pandemic level, but the May report represented some much needed progress.  

The unemployment rate fell from 14.7% to 13.3%. Average earnings cooled to 6.7% from 8%. The fall in the earnings level is likely down to the rehiring of workers that were previously out of work on account of the health emergency. The reading spiked at the height of the lockdowns as many professional workers - who are typically higher paid – worked from home, while those in hospitality, retail and tourism saw their work come to an abrupt halt. President Trump boasted about the strong jobs report and there is possibility of another stimulus package, even though it would appear the economy has turned a corner.      

The jobless claims report that was published on Thursday showed the rate declined for its ninth consecutive week. When you factor in Friday’s numbers, equity traders took the view that we might have seen the worst in terms of the state of US jobs, hence the rally in stocks. The FTSE 100 hit a three-month high, the S&P 500 hit its highest level since late February and the NASDAQ 100 set yet another record high.    

The well received data from the US helped the dollar snap out of its losing streak. The greenback closed higher on Friday after falling for eight consecutive sessions prior to the report. It would seem the possible rebound in the US jobs market encouraged traders to close out their short positions. The upside move wasn’t that big when you consider how equity markets reacted to the non-farm payrolls figure. It is possible that dealers are not overly keen on the greenback as it is considered to be a lower risk currency, but they are more interested in riskier currencies such as the Australian dollar and the Canadian dollar.

The risk-on sentiment was seen in the gold market too, as the commodity fell to its lowest level since early May. Dealers dumped the metal in favour of stocks as there are clear signs the global economy is improving as the lockdown restrictions are being unwound. The positive move in the greenback was a factor in gold’s tumble too.

OPEC+ agreed to extend the deep production cuts to July in a bid to prop up the oil price. The current output level has seen 9.7 million barrels per day (bpd) being taken from production, but in July that will change to a 9.6-million-bpd fall. Mexico will not participate in the agreement, hence why there will be a slight change in output. The group are determined to get all members to comply with the new output targets as nations that fail to do so will have to make it up for it between now and September. Going into the meeting, there was speculation about some sort of extension in terms of the timeline. Saudi Arabia have lifted their selling price of oil to Asia by its largest increment in at least twenty years. Their selling price to other parts of the world has been lifted too. WTI and Brent crude have been on bullish runs recently, and that is likely to continue in light of the latest news.

Stock markets in Asia are showing small gains as the bullish move from Friday’s session in the West has lifted sentiment. New Zealand have eradicated Covid-19, so this adds to the view that governments are in control of the health crisis. European stock markets are being called a little lower, despite the positive moves witnessed in the Far East.                  

Over the weekend China posted disappointing trade data. The US-dollar-denominated trade figures showed that imports in May slumped by 16.7%, while the consensus estimate was for a fall of 9.7%. Keep in the mind the April reading was -14.2%. China is a massive importer of metals, energy and agricultural commodities, and those prices were relatively weaker a few weeks ago, so the internal demand might not be as bad as the headline figure would suggest. The exports fell by 3.3%, which was better than expected seeing as traders were expecting a fall of over 7%. In April, the exports reading unexpectedly rose by 3.5%, but there was speculation that Western economies were snapping up personal protective equipment from China, so that might have skewed the numbers.

German industrial production will be posted at 7am (UK time) and the April reading is expected to be -16%, while the March reading was -9.2%.

Canadian housing starts for May are expected to be 150,000. The report will be revealed at 1.15pm (UK time).  

Christine Lagarde, the head of the ECB, is due to speak at 2.45pm (UK time).   

EUR/USD – has been pushing higher since early May and if the bullish run continues it might target 1.1495. If there is a pullback, it might find support in the 1.1200 region.  

GBP/USD – is in an uptrend and it is now above the 200-day moving average at 1.2667. A further rally might run into resistance at 1.3000. A break below 1.2667 might find support at 1.2382.  

EUR/GBP – has been in an uptrend for one month and if it retakes 0.9054, it might target 0.9239. A move lower might find support at 0.8826, the 50-day moving average.   

USD/JPY – has been in a positive trend for the past month and resistance might come into play at 111.71. A pullback might find support at the 200-day moving average at 108.38.    

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