Risk Off As US-Sino Tensions Rise, PMI's & US Jobless Claims
Fiona Cincotta May 21, 2020 7:40 AM
After an impressive rally in the previous session, investors are pausing for breath on Thursday.
After an impressive rally in the previous session, investors are pausing for breath on Thursday. Rising tensions between US and China and China and Australia are keeping risk appetite on edge, pulling stocks lower ahead PMI releases and US initial jobless claims.
The Pound continues to fall away from Tuesday’s high of $1.2297, dragged lower by BoE Governor Andrew Bailey’s U-turn on negative rates, saying that they are “actively under review” for the first time in in the bank’s 324 year history. Whilst negative rates would encourage the banks to lend more, there is no guarantee that the demand exists. Furthermore, negative rates would exert more pressure on bank’s already squeezed margins. The bank will likely analyse how other economies have fared under negative rates before taking any decision.
In the UK PMI’s for both the service and manufacturing sectors, due for release today. Analysts are expecting to see an improvement from April’s worst ever prints. However, given that the lockdown in Britain has only eased very slightly so far in May, activity is expected to have only increased very slightly.
US initial jobless claims are expected to show 2.4 million Americans filed of unemployment benefits in the week ending 15th May, the lowest since the start of the coronavirus crisis 2 months ago. Although still very elevated given where we are on the coronavirus curve. This is mainly due to a backlog of layoffs keeping the rate high. The total initial jobless claims over the past 2 months is expected to be over 39 million or 23.9% of the US workforce.
Initial jobless claims and continuing claims have made for very grim reading over the past two months but recently they haven’t been moving the market. A very upbeat continuing claims, indicating a strong return to hiring could inject a serious dose of optimism into the markets but that is looking unlikely this week.