Another step high ahead of US NFP

Government and central bank stimulus and optimism surrounding the reopening of economies continues to overshadow astonishing data.

Charts (6)

Wall Street joined Europe finishing lower in the previous session as the risk on rally paused for breath. After surging across the first part of the week, and a brief dip lower on Thursday, traders are once again showing willingness to take on risk and push higher into the weekend, despite the upcoming non-farm payroll.

European bourses are pointing to an upbeat start, as are US futures, as a combination of government and central bank stimulus and optimism surrounding the reopening of economies continues to overshadow astonishing data which lays bare the destruction that coronavirus crisis has caused to economies across the globe.

German factory orders plunge
Yesterday the ECB added to the stimulus effect, expanding its emergency bond buying programme by €600 billion, more than what the market had expected.  However, the grim staff projections offered support for the move as did today’s German factory orders which declined a record -25.8% mom in April, worse than the -19.7% forecast. 

In true show of how the markets react to dire data of late, the Euro shrugged off the numbers, remaining elevated versus the weaker USD, whilst the Dax showed little regard, with a 1% jump on the open still forecast.

8 million jobs lost
Attention will now turn to the US non-farm payrolls. Expectations are for 8 million jobs to have been lost in May, a significant improvement on the 25 million recorded in April. This would take unemployment to 19.5%, up from 14.7% last month. Given that he ADP private payroll report, a strong lead indicator for the NFP was significantly better than forecast, there is a good chance that today’s jobs report will surprise to the upside. Wages are expected to remain skewed to the upside as more low earners are laid off.

If the data isn’t as bad as expected, this could signal that the downturn might not be as bad as initially forecast, providing an uplifting effect to the market. Even if the figure is worse than anticipated, there is a good chance that markets will brush it off as we have seen countless times with dire data over the past 10 weeks. 

A word on oil
Oil is nudging higher for the fourth straight session, as traders await an OPEC+ meeting which could take place as soon as this weekend. WTI has rallied 5.9% across the week, its sixth consecutive week of gains supported by output cuts and signs of improving fuel demand. The pace of gains has slowed as investors await confirmation, potentially this Saturday as to whether OPEC+ output cuts will be extended. Even if the output cuts are extended there is always the question of compliance.

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