Sterling rallied last week despite the lack of progress in the UK/EU trade talks. The “risk on “tone took centre stage downplaying the negative sentiment surrounding the UK/EU trade talks. Equity markets surged with several markets up by more than 8% for the week. The US dollar slipped against both the euro and sterling. The positive tone was further confirmed with the oil price rising to its highest level since early May.
The surprise data of the week was the US employment data, some forecasts posted expectations of a further reduction in jobs between 7.5m- 10m. However, non-farm payrolls rose by 2.5m last month. This could be a remarkable turnaround. The unemployment rate was expected to be close to 20% not far off the Great Depression peak of 24.9%. The increase in jobs pushed the rate down to 13.3% in May, from 14.7% in April.
In the meantime, as expected the latest round of UK-EU trade talks showed no progress on major areas of contention, according to Brussels’ chief negotiator. Prime Minister Boris Johnson and EU Commission President Ursula von der Leyen will meet at a yet to be confirmed date this month to bridge gaps in the two sides’ mandates. Sterling has been resilient despite the lack of progress, which may be down to a case of déjà vu as far as talks between the two parties is concerned.
The ECB also helped improve sentiment as it over delivered by increasing its PEPP envelope by €600bn to €,350bn until June 2021. The forecast increase was €500Bn. At the same time, it announced that it had decided to reinvest the PEPP holdings at least until end-2022.
This week the calendar has both political events and economic data due for release, most notable we will be watching UK/EU trade talks, US unemployment data and green shoot as lockdown restrictions are lifted.
- ECB President Lagarde speaks
ECB President Lagarde will testify to the European Parliament. Her comments are likely to be very similar to those made during her press conference following Thursday’s policy announcement.
- EZ unemployment data
- EZ GDP
- US JOLT
Economic data will be the focus from the Eurozone with the release of the unemployment data and the GDP. However, as this is lagging data it may be discarded. In the US, the job openings data will hold the spotlight to confirm the positive sentiment seen in last week’s job data.
- US CPI
- US FOMC meeting
Whilst it is unlikely that we will see any policy changes from the US Federal Reserve’s policy update, it will still be a closely watched event, especially after last week’s labour data. Fed policymakers may consider some changes to their ‘forward guidance’ and could reintroduce the summary of the Committee’s economic projections (suspended in March) as well as use the interest rate forecasts.
- US PPI
- US Weekly jobless claim
Following last week’s shock US labour data, the market will be keen to see what translation we are seeing in weekly jobless claims. Of late we have seen a bottoming out of these numbers, if this trend continues it will be positive for the economy.
- UK GDP (monthly)
- US UoM Consumer confidence
Friday’s reading for UK April GDP will provide the most comprehensive indication yet of the economic impact of the lockdown. The headline figure is expected to show a contraction between 18-20%. This could highlight the size of the task that the UK could face to return to pre COVID-19 levels. In the US, the University of Michigan consumer sentiment index (are timely readings which will be watched for indications that sentiment has picked up.
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