Mid-Week Market Drivers – Geopolitics, Service PMIs, Employment, and COVID-19 in FocusThere’s been plenty of optimism this week on an economic rebound. Service sector PMIs and employment figures will provide further guidance.
The week is almost at the middle. Various geopolitical events are occurring. Among them is the ongoing civil unrest in the United States, which you had forecast as possible earlier this year.
In the meantime, there is news about the US-China trade deal. Could you comment on that?
We’ve seen the U.S and Trump flex the muscles last week. We then heard Beijing announce the ban of U.S soybeans and pork imports on Monday. SoE continued to import at the start of the week, however. That’s also some arm flexing. So, both sides have shown their intent and what they are willing to do. They’ve yet to do that and this has been a key driver for risk appetite early in the week.
All of this could change at the drop of a hat, however. The markets will need to be cautious should tensions escalate in the coming days. Such an eventuality could lead to exactly what both sides have threatened in recent days.
The Phase 1 Agreement remains in place and both sides are sticking to it. This is not over by a long shot, however. Trump will want to continue to distract the markets from the COVID-19 pandemic. For now, he has the U.S riots so no real need to go back and begin another attack on China and Beijing.
It appears that we have a situation that has never been seen before.
Meanwhile, are there any economic data releases occurring, which should be looked at?
It’s Wednesday. We’ve got May service sector PMIs due out today and the numbers are particularly important. We are looking for a service sector-driven economic recovery.
Expect the Eurozone PMIs and the U.S ISM Non-Manufacturing PMI to have an influence on Wednesday.
We then shift back to employment numbers that remain key areas of focus along with consumer confidence and spending.
From the U.S, the ADP numbers on Wednesday are followed by the weekly jobless claims on Thursday. On Friday, it’s May’s nonfarm payrolls and the U.S unemployment rate. Will the markets be able to stomach a 20% unemployment rate?
Probably not… That’s going to take some time to bring back down to sub-4% levels. From Canada, employment numbers are also due out that could test the Loonie.
These are the areas we would want to focus on through the remainder of the week.
Employment and surveys about the future are in the focus.
Since we mentioned Europe, is there anything to highlight in the continent?
We’ve got the ECB in action on Thursday, which will be particularly interesting. We saw the EU deliver the impressive recovery package to support economies stricken by the COVID-19 pandemic.
Now that the EU has stepped up, the ECB’s demands for fiscal support have been met. The ECB’s unlikely to ease policy further this time around. A promise of more support would be a minimum. That should support market risk appetite. We’ve seen the EUR on the move in response to the material shift in the economic outlook. As long as the ECB doesn’t pour cold water on that, then expect $1.12 and $1.13 levels to come into play.
There’s also Brexit and how negotiations progress… Neither side needs a hard Brexit.
On the data front, the EU Recovery Fund should mute any weak numbers from the Eurozone this week.
A lot of uncertainty has appeared in the markets.
Is there anything positive going on?
Finally, looking at the COVID-19 numbers, we’ve seen the 4 most adversely affected EU member states report sub-300 new cases for a 2nd consecutive day on Tuesday.
This is off the back of an aggressive easing of lockdown measures. It’s a huge positive as we are not seeing this 2nd wave that the markets were concerned about.
The numbers also suggest that the equity markets may not see the correction that many had anticipated. How far the markets have left to go remains to be seen, however. Current levels aren’t justified considering the economic environment.
For the Pound, an extension to the transition period and improved relations between the UK and the EU would be positive.
Hopes of the UK and the EU being able to hammer out the Brexit agreement is another positive this week.