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The Early

03 Apr 2020 09:02

Markets: off the scale

Two big numbers yesterday: six million more US jobless claims; and potentially 10-15mbpd to come off global crude oil production, at least according to President Trump, all thanks to his brokering skills. The impact on equity markets was a modest net positive, although the gains did understandably lean very heavily on the energy stocks.

The Eurozone benchmarks ended with marginal gains thanks wholly to the oil & gas sector which ended +3.9% higher. However, technology -1.2% and consumer services -0.7% continued to struggle.

The FTSE 100 received a welcome late boost as the integrated oil majors jumped +7.8%, with additional support from mining +3.1% and tobacco +3.0%. The Mid 250 was also boosted by 10%-plus gains for the E&P stocks but that was offset by weakness elsewhere, notably in travel & leisure -5.0% and a broader selection of consumer plays. Eight of our 12 PHySiCS sectors ended lower while the value factor has continued to struggle after the end-Q1 rebalancing, down another -619bp long/short in the past five sessions

Overnight. Understandably, doubts are being raised about the plausibility of the President's claims. US indices ended in positive territory, with the S&P energy sector ahead by +9.1% and every other sector up, notably utilities +3.1% and consumer staples +2.9%. However, the crude price has given back some of yesterday's +25% surge in Asian trading, where equity indices were modestly lower and safe haven buyers drove US Treasury yields to a three-week low. The US dollar remains in demand, gaining close to +2% this week. European indices are called lower.

Early numbers. Dow +2.24%, S&P +2.28%, NASDAQ +1.72%, VIX 50.91; US 10-yr 0.59%; Nikkei -0.62%, Hang Seng -0.80%, Shanghai Comp -0.60%; £=$1.2379, £=€1.1410, Brent $28.51/bbl, Gold $1611.06, FTSE 100 indication -55 (at 6.35 UK).

Macro: the lines get longer

The US initial weekly claims release is arguably the most important economic data point of the moment, as it is the closest available to a real-time indicator. Last week's increase of +6.65m comfortable exceeded the previous week's record and the 10% peak in US unemployment seen in 2009 is already under threat. Some forecasters now predict that 20 million workers will be laid off or furloughed by July. Today's official labour market data are a lagging measure.

The Bank of England provided more colour on its QE plans, confirming that corporate bond purchases would account for at least £20bn of its increased asset purchase programme.

The Nationwide released its March house price data showing an increase of +0.8% MoM, which lifted annual inflation to +3.0% YoY, the highest since January 2018. However it also confirmed that the market has now ground to a halt given the Government's lockdown measures, and the consequent lack of transactions will make future trends more difficult to judge.

March services PMI day began with China's Caixin reading bouncing to 43.0 (from 26.5), still firmly in contraction territory. Japan's equivalent measure hit an 11-year low of 33.8 (from 46.8).

Today’s events. Eurozone Mar final PMIs (9.0) services 28.4, composite 31.4; UK Mar final PMIs (9.30) services 34.8, composite 36.2; Eurozone Feb retail sales (10.0) +01% MoM, +1.7% YoY; US Mar non-farm payrolls (1.30) -100k, unemployment rate 3.8%, average hourly earnings +0.2% MoM, +3.0% YoY; US Mar ISM non-manufacturing (3.0) 44.0.

Ian Williams
Economics & Strategy
020 7418 8819
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