11 May 2020

Investors Bullish Despite Spike in US Unemployment

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What’s happening: US stocks ended the week sharply higher, despite the Labor Department reporting a loss of more than 20 million jobs in April.

What happened: The US has been facing its biggest economic crisis in about a century due to the coronavirus outbreak.

The pandemic has resulted in the loss of 20.5 million jobs in just one month, driving the unemployment rate to a record high of 14.7%. This is specially stark compared to the employment rate just two months back, when it was at a 50-year low level of 3.5%. The Bureau of Labor Statistics painted a grimmer picture, saying that the jobless rate would have surged to around 20% if furloughed employees were included in the figure.

Despite this, investors are hopeful of an economic recovery and believe that the current woes have already been priced into the numbers.

Why it matters: The US stock market shrugged off the disappointing employment report to close Friday on a stronger note. It also recording the highest weekly gain in almost a month. Although the US economy lost 20.5 million jobs last month, the number was below the expectation of 22 million job losses.

Another reason for positive investor sentiment is that employers have classified 18 million of the 20.5 million job losses as temporary. They believe employment will bounce back when the economy reopens completely.

The US equity market also seemed to be cheering the reopening of various economies around the world, with countries easing lockdown restrictions.

Investor sentiment was also lifted by reports of the US Trade Negotiator Robert Lighthizer and Chinese Liu He holding talks over the phone that resulted in both nations agreeing to strengthen their trade ties. US President Donald Trump had earlier in the week blamed China for mishandling the COVID-19 outbreak and threatened to impose more tariffs on imports from the country.

The Dow jumped 455.43 points on Friday to close the week higher by 2.6%. The S&P 500 gained 3.5% in the week and closed at 2,929.80 on Friday, while the Nasdaq 100 index climbed 6% last week, erasing all its losses for the year.

In corporate news, shares of Uber Technologies rose 6% after the company reported its first-quarter results. The company faced weakness in its ride-hailing business but showed strength in its food-delivery business. Herbalife Nutrition’s stock spiked around 12% after the nutritional supplements firm reported better-than-expected quarterly results.

In other news, June gold declined 0.7% to end at $1,713.90 an ounce, while the US dollar index, which measures the greenback’s performance versus a basket of six rival currencies, closed mostly flat.

What to watch: Investors look forward to the US economy returning to its normal growth trajectory following the easing of lockdown restrictions. There are some fears, however, of the early reopening resulting in a second wave of coronavirus cases in the country. Investors are carefully monitoring share price movements.

US stocks are expected to continue the positive momentum today, with the stock futures pointing towards a higher start on Wall Street. The economic calendar is light today, with the country expected to release only consumer inflation data.

Investors will also be monitoring daily coronavirus numbers, with the global cases going past the 4 million market. The US has so far confirmed around 1,329,790 COVID-19 cases with 79,520 deaths.

The Markets Today

     

Crude oil will be in focus today, after contracts closed higher last week.

Context: Crude oil futures settled higher on Friday, as market sentiment was spurred by oil production cuts and optimism of a rebound in demand due to the reopening of economies.

Details: Various states in the US have come back online to some extent due to lockdown restrictions being somewhat eased.

The EIA last week reported a weekly drop in US gasoline stockpiles. There was some improvement in motor gasoline demand in the week, with demand down 39.6% over the latest rolling four-week period. The previous report had implied a decline in demand of 43.7% in the prior four weeks.

WTI crude for June delivery gained 5.1% to settle at $24.74 a barrel on Friday, with prices for the contract up more than 25% during the week. Brent crude for July also rose 5.1% to close at $30.97 per barrel, recording a weekly gain of around 17.1%.

June gasoline closed the week higher by more than 24%, while June heating oil recorded a weekly rise of 13%.

Baker Hughes announced late Friday that the number of active US oil rigs had declined by 33 to 292 last week.

What to watch: The IHS Markit expects oil demand to contract in the second quarter. The firm projects oil demand to be lower by 22 million barrels per day. It also projects total liquid production cuts of around 17 million barrels per day during the quarter. However, markets are expecting a slight rebound in oil demand due to the easing of lockdown restrictions.

Other Markets: European indices were trading higher at 9:00 am GMT, with the FTSE 100, German 30 and French 40 up by 0.8%, 0.5% and 0.2%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

Speeches from members of the US Fed, Raphael W. Bostic and Charles Evans.

 

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