Thursday, March 26, 2020

US May Face These Challenges with Virus Layoffs

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What’s happening: The US Department of Labor is scheduled to disclose its latest numbers on initial jobless claims for the week of March 20 later today. This report has historically had a meaningful impact on Wall Street’s performance.

What happened: US markets have been turbulent, with growing concern around a coronavirus-induced economic slowdown. The Federal Reserve has announced various measures to ease the economic impact of the coronavirus, with US lawmakers agreeing to a $2 trillion stimulus package only yesterday. The Fed has also brought interest rates to near zero in a bid to lift investor sentiment, while also making an unprecedented announcement of an unlimited bond-buying initiative.

Why it matters: Initial jobless claims data measures the number of people filing for unemployment benefits for the first time during the past week. It is closely monitored by investors and traders, as it is among the few near-real-time reports provided by the government and is an important indicator of economic strength.

Details: Companies across the US have pulled down their shutters following the spread of coronavirus. The speed at which companies have shut shop could potentially deliver the biggest blow to the US labour market in history. The travel, leisure and hospitality sectors, which are the hardest hit by COVID-19, employ around 15.8 million people. Many of these companies are temporarily shut, while some non-managerial employees losing their jobs. The restaurant industry is also under threat and current estimates indicate a loss of 5 to 7 million jobs. What is more concerning is that the duration of this temporary shutdown is yet unknown.

The weekly release of the report can be a market moving event. The employment situation is extremely important for a macroeconomic analysis, so the financial markets track employment indicators, although this is a low impact indicator compared with the monthly BLS's "Employment Report". This report tracks how many new people have filed for unemployment benefits in the previous week. It is a good gauge of the U.S. job market. For instance, when more people file for unemployment benefits, fewer people have jobs, and vice versa. Investors can use this report to gather pertinent information about the economy, but it's a very volatile data, so the four-week average of jobless claims is monitored

The initial jobless claims figure has a significant impact on the financial markets, being among the first indicator to be announced. A higher-than-expected reading is generally negative for US stocks as well as the greenback.

In the week ending March 14, initial jobless claims had risen by 70,000 to 281,000. This was well above market expectations of 220,000. For the current report, the consensus estimate stands at a whopping 1,000,000.

What to watch: US stocks posted strong gains this week. Investors are now hoping for the initial jobless claims to come in lower than estimated, to keep the upward momentum going. On the other hand, US stock futures are trading in negative territory this morning, pointing towards a lower open on Wall Street.

The Markets Today

     

WTI crude oil is likely to be in focus today, after three consecutive bullish sessions. Oil prices have been on a downtrend recently due to a supply glut and declining demand.

Context: Crude oil futures settled higher on Wednesday, after paring earlier declines. Oil prices were boosted by optimism related to the $2 trillion stimulus package announced by the US.

Details: Crude oil prices were lifted by progress on the stimulus package and news of the US planning to exert pressure on Saudi Arabia to hold back its decision of increasing oil production.

WTI crude for May rose 2% to end at $24.49 per barrel on the NYMEX (New York Mercantile Exchange) after falling to a low of $22.91 earlier in the session. May Brent crude gained 0.9% to settle at $27.39 per barrel.

The US EIA (Energy Information Administration) report showed a rise in stockpiles for the ninth consecutive week. Despite this, the rise of 1.6 million barrels in crude supplies for the week ending March 20 was much lower than expectations of an increase of 2.5 million barrels. The data also showed a strong decline in gasoline production, with supplies falling 1.5 million barrels.

At 9:00am GMT, crude oil futures were down around 4.3% to $23.45 per barrel. Despite the recent bullish run, oil prices are only a third of what they were at the beginning of the year.

What to watch: Markets will be keeping an eye on any progress in America’s talks with Saudi Arabia regarding oil production. Oil prices may continue to decline if Saudi Arabia decides to go ahead with its plans and major oil producers join in.

Other Markets: Most European indices were trading lower at 9:00am GMT on Thursday, with the FTSE 100, German 30 and French 40 down 2.2%, 2.4% and 2.6%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
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What else to watch today

     

Brazil’s IBC-Br economic activity index, Mexico’s unemployment rate and overall index of economic activity as well as the US GDP growth rate, goods trade balance, wholesale inventories, natural gas stocks change and Kansas Fed manufacturing index.