Markets are still responding to the unexpectedly strong U.S. jobs data from Friday, explains Fiona Cincotta.
After a phenomenal week last week which saw European bourses charge higher, markets were looking a little more subdued ahead of the London open. On the one hand the astonishing U.S. jobs market data was offering support, whilst on the other, a mixed picture over China’s economic recovery from Covid-19 dragged on broader sentiment.
Exports from China contracted 3.3% year-on-year in May, better than the 7% contraction forecast and an improvement on April’s -3.5%. Imports, however, shrunk a much larger than expected 16.7%, worse than April’s -14.2% drop and the -9.7%decline forecast. The data shows that while domestic demand is starting to slowly pick up after the Coronavirus lockdown, the global recovery is still a long way from showing signs of improvement.
The data comes following U.S. jobs data on Friday that astounded the markets— 2.5 million jobs were created in May, obliterating expectations of -8 million job losses (though those figures are questionable). U.S. futures are looking to extend gains, while the safe-haven U.S. Dollar is once again on the back foot, following losses of 1.4% across the previous week. Traders will look ahead to the Federal Reserve’s monetary policy announcement on Wednesday for further clues.
UK travel quarantine
The UK pressing ahead with two-week quarantine measures on international arrivals is set to dampen the mood on the FTSE. The move is expected to devastate tourism, wrecking the chances of summer holiday plans reviving a sector which is already on its knees. The move effectively pours cold water on any hopes of reigniting the sector after the virus induced slump.
On the economic calendar, there is no high impacting data from US or UK today.
EUR below $1.13 after weak German data
The euro has slipped back through $1.13 consolidating gains from the previous week, which saw the common currency gain 1.7% across the week and hit a three-month high. German industrial production plunged by a wider than forecast 17.9% in April, highlighting the damage that Covid-19 caused while adding pressure to the common currency. Attention will now turn to Eurozone sentiment data, which is expected to show that morale slipped again in June. Christine Lagarde is also set to testify.
OPEC agrees to extend record output cuts
Oil struck a three-month high overnight after OPEC+ announced that it would extend its current production cut deal, following a meeting on Saturday. The 9.7 million barrel-per-day output cut will be extended for at least another month. While most countries taking part in the deal were willing to continue, poor compliance from some counties was causing discontent within the group.
Oil prices have effectively doubled across the month of May as OPEC+ regulates the supply side and reopening of economies boosts demand. However, prices haven’t ripped higher at the start of the week because the move was, too an extent already priced in. Oil is currently hovering around $40 per barrel mark, a three-month high.
FTSE Chart
Fiona Cincotta is a MarketAnalyst for Currency Live
