Eyes on NFP in the USA after dramatic unemployment data. Possible downward revision of PMI services in the UK.
Last week, 6.6 million people filed for US unemployment benefits; the closure of the activities caused by the coronavirus has in fact forced millions of Americans to request subsidies. The figure is double that of the requests from the previous week and the forecasts for this week.
As expected, the US dollar gained after the most marked and unprecedented jump in US unemployment claims; Dow and S & P500 closed a volatile session up 2%. The Nasdaq gained 1.72%.
In New York, energy stocks (+ 9%) led the hikes, while oil surged 35% after Donald Trump's tweet, which said he expected a cut in Russian and Saudi production, which could reach 15 million barrels, to curb the collapse of oil. In the tweet it does not specify whether it is a daily reduction or spread over time. Given the significant figure, we would not be surprised to see disappointed investors in the event of a more limited intervention, if there really should be one planned.
The positive news is that Saudi Arabia has scheduled an emergency meeting of the OPEC + group with Russia. Even if the Saudi market share is growing, the reduction of the overall market will certainly encourage the cheapest world producer to conclude an agreement for a cut in production, so as to raise global oil prices, and therefore also revenues. After seeing the dramatic consequences of last month's veto, Russia is also interested in reaching an agreement on a cut. The intervention should amount to at least 5 million barrels per day to compensate for the collapse in demand due to the blockade of transport and the planes left on the ground worldwide.
From a market perspective, WTI crude oil stumbled on solid offers at $ 28 a barrel, stabilizing at around $ 25 after yesterday's overdraft close. The expected deal of the OPEC + group could provide support close to $ 22. Investors are lurking to ride the next bullish wave. Therefore any positive news or speculation will be enough to trigger another upward movement, although it will be difficult to overcome the offers in the $ 28/30 area, at least until the world rages on the coronavirus and the closures that derive from it.
Asian stock exchanges did not pay attention to Trump's tweet. In Tokyo, Shanghai, Hong Kong and Sydney, shares traded in negative territory, with the three largest US stocks falling. Caixin's PMI services confirmed a slowdown in the contraction of Chinese activities, but the figure also revealed that life has not yet returned to normal in China, with the exception of manufacturing.
Exchanges on FTSE futures (-0.67%) suggest a weak start for Friday's session. Energy stocks are likely to reverse some of Thursday's hikes in the wake of the 5% retracement in oil prices.
In the meantime, gold is moving on its own. Rather detached from what's going on in other asset classes, the precious metal swings up and down. Weak economic data could explain yesterday's hike to $ 1610, but the surge in risky assets once again shows that the gold market is moving with completely different dynamics.
On currency markets, the US dollar defines the general direction for all. The greenback remains strong because risk aversion reigns.
Looking at the devastating numbers on unemployment claims, much worse figures are possible. As we said in our previous reports, even in the case of negative data, the US dollar should remain in the favor of investors, who have no other refuge in which to find shelter. We could therefore see a reversal of the relationship between data and dollar bias. Better data would be more effective in weakening the USD before the weekly markets close.
EUR / USD is heading towards 1.08 in the wake of the strengthening of the USD. The final PMI figures for this morning should not hold any surprises for the euro, and confirm the sharpest downturn ever seen before. Later, however, the NFP figure may shake the EUR / USD. Disappointment could increase flows to the USD safe haven asset and drop the pair below the 1.08 level. Higher than expected data, however, could encourage a recovery towards the resistance at 1.10.
Across the Channel, the cable reels just below the 1.24 level. In the UK, the PMI services figure could be revised down, to 34.7 points from 35.7 in the previous survey, considering that the announcement on the British lockdown came soon after the publication of the latest PMI figures. Since services make up up to 80% of the British economy, the inevitable weakness of the data related to this sector could weigh on the pound.