After a phenomenal week last week which saw European bourses charge higher, markets were looking a little more subdued by Monday. On the one hand, the astonishing US jobs market data was offering support, whilst on the other, a mixed picture over China’s economic recovery from covid-19 dragged on broader sentiment.
Exports from China contracted -3.3% yoy in May, well above the -7% contraction forecast and an improvement on April’s -3.5%. Imports, however, shrunk a much larger than expected -16.7%, worse than April’s -14.2% drop and the -9.7% decline forecast. The data shows that whilst domestic demand is starting to slowly pick up after the coronavirus lockdown, the global recovery is still a long way from showing signs of improvement.
The data comes following US statistics on Friday that astounded the markets. 2.5 million jobs were created in May, obliterating expectations of -8 million job losses. US futures are looking to extend gains, whilst the safe-haven US dollar is once again on the back foot, following losses of 1.4% across the previous week. Traders will look ahead to the Fed’s monetary policy announcement on Wednesday for further clues about the likely course of US monetary policy.
UK travel quarantine
The UK pressing ahead with two-week quarantine measures on international arrivals is dampening the mood on the FTSE. The move is expected to devastate tourism, wrecking the chances of summer holiday plans that would have revived a sector that is already on its knees. This effectively pours cold water on any hopes of reigniting the sector after the virus-induced slump.
On the economic calendar, there is no high-impacting data from US or UK today.
EUR below $1.13 after weak German data
The EUR/USD has slipped back through $1.13 consolidating gains from the previous week, which saw the common currency gain 1.7% across the week and hit a 3-month high. German industrial production plunged by a wider than forecast -17.9% in April, highlighting the damage that covid-19 caused whilst adding pressure to the common currency. Attention will now turn to Eurozone sentiment data, which is expected to show that morale slipped again in June. Christine Lagarde is also set to testify.
OPEC agrees to extend record output cuts
Brent crude futures struck a 3-month high overnight after OPEC+ announced that it would extend its current production cut deal, following a meeting on Saturday. The 9.7 million bpd output cut will be prolonged for at least another month. Whilst most countries taking part n the deal were willing to continue, poor compliance from some exporters was causing discontent within the group.
Oil prices have effectively doubled across the month of May, as OPEC+ regulates the supply side and reopening of economies boosts demand. However, prices haven’t ripped higher at the start of the week because the move was, to an extent, already priced in. Oil is currently hovering around $40 per barrel mark, a 3-month high.