A positive start to the week
It was a positive end to last week with the S&P500 up 1.7% Friday, US 10Y treasury yields up 4bps to 0.68% and 2Y treasuries rising 1.8bps from the record low set on Thursday. We should see better trading sentiment at the start of the week in Asia on the back of trade war calm and the improved US market outlook.
Easy liquidity and the amount of available Fed firepower seems set to continue to propel stocks higher. Cash on the sidelines continues to suggest that it’s a matter of time before Wall Street gets stopped into equities rather than getting stopped out.
Forecasting today's economy is not easy and perhaps the biggest reason for that is this is not a normal recession; there’s no blueprint for playing off so no one can be sure about how the recovery will unfold.
Therefore, it could be a spin of the roulette wheel from here on out, but, so far, the ivorine continues to land on the green (0) and pays out big to aggressive risk-takers as the trend is always the market’s best friend until it’s not.
And there’ll be no rest for the weary: After shrugging off a historic plunge in April employment, market participants will need to digest further record-setting monthly declines in core CPI.
However, Fed Chair Powell's appearance on Wednesday may overshadow what’s likely to be a significant weakness in this week's economic data. One thing we can be sure of is he’s not going to walk back any of the Fed’s extraordinary stimulus measures – if anything he could lay it down even thicker. Indeed, this is when guidance could count in spades: just throw out a massive number and worry about the details later.
Regionally, China isn’t going to sit back and watch PMIs anchoring to the 50 marks. The PBoC may cut RRR for some banks and lower the MLF rate or reverse repo rate again as early as May.
US-China tensions failed to elicit fireworks in USDCNH and China equities. And on back of the better China trade data, some optimism is building into this week's China data dump on Friday, which could see an active rebound in China retail sales and industrial production, suggesting risk could trade on an even keel this week – at least as even of a keel as could be expected with economies around the world attempting to reconnect after a stressful month in lockdown. Traders will be keenly monitoring real-time data around energy consumption, transport traffic and foot traffic to gauge investor confidence during the easing of mobility restrictions process.
It’s no secret that unemployment numbers right now are soaring, with US payrolls for April recording a 20.5mn decline in employment. That compared to a consensus estimate looking for a 22mn drop, but it seems illogical to describe the outcome as better than expected.
But no one can tell how severe a pounding the coronavirus pandemic will deal the world's biggest economy; the numbers did not provide much of a steer with traders now focused beyond lockdown.
The question that matters most: Where does it go from here?
On one level, the data makes sense while the number is eye-popping and nonsensical at the same time. But it’s the future that matters. It was widely expected this was going to be the worst report in history, as well as being riddled with inaccuracies and estimation issues.
Going forward, there’s hope within this labyrinth of statistical perversity. The vast majority of job losers anticipate being recalled. Temporary layoffs on this scale have never happened (like almost every data point in this jobs report), and the hope is that it leads to a rather rapid return to work.
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In this edition of “Charts of the Week”, we will have a look at precious metals where the short-term outlook has turned brighter, as well as Bitcoin which is going through a major sell-off right now, followed by Oil – which is finally on the move after days of consolidation – and two major currency pairs.