Weekly Market Wrap 01-05 /June/2020

Unexpectedly, the US starts to add jobs

Marius Paun | London, UK | Senior dealer | Friday 05th June 2020

The US Labour Department release the non-farm payrolls data on Friday, showing employers added 2.5 million jobs last month with unemployment rate sliding to 13.3%. The market expected a drop of more than 8 million jobs and the unemployment rate to shoot past 20%. As a consequence, the Dow Jones opened 700 points higher and now an increasing number of analysts think the V shape recovery in stocks is the favourite. The shockingly good result was well received by the markets despite the widespread riots in the US.

We had the Caixin Manufacturing PMI numbers from China for May unexpectedly rose to 50.7 (indicating expansion) versus predictions for 49.6. The output posted a strong gain, a record since 2011 but external demand is still lagging. There is still ongoing tensions with the US but so far China is well on its rebound from lockdown.

EU-UK talks on a new trade deal between the two sides began on Tuesday and already the Chief European Negotiator, Michel Barnier looked hardly optimistic about the outcome. However, he wrote to the UK MPs saying the European Union is willing to accept an extension of up to two years to allow for the new trade deal.

Interestingly the Times reported the UK side is expected to signal some compromise on the sticky point of fisheries if the European Union back off from its demands on regulatory alignment. On the other hand, the Bank of England warned the UK banks to step plans for a no-deal Brexit.

Meanwhile UK May manufacturing PMI came in at 40.7 showing the British factories suffered a sharp fall in activity but at least the figures are better than April at 32.6.

The European Central Bank had its monetary policy meeting on Thursday where it lowered the GDP prediction for 2020 to drop by 8.7% and also cut the inflation forecast. Yet the President Christine Lagarde said in her opening statement ‘the economy shows signs of bottoming out’.

Gold moved below the $1700 mark going into weekend as the positive data for the US employment reignited the risk-on sentiment.

The Reserve Bank of Australia left its benchmark interest rate unchanged at 0.25% at the latest monetary policy meeting on June 2nd. It also promised not to raise the rate until ‘progress is made towards full employment and inflation target’.

We learned over the last weekend that the Algerian Energy Minister proposed to bring the OPEC+ meeting forward to this weekend scheduled initially to take place on June 9-10. At some point the meeting was in danger of not taking place because of disputes over compliance to sticking to production quotas.

Meanwhile the Department of Energy released its weekly stats showing the US crude inventories dropped by 2.07 million barrels versus estimates for a build of 300,000 barrels. The US crude prices continued to rally coming within touching distance of $40 per barrel on Friday afternoon.