Stocks surge as stimulus keeps coming, UK unemployment holds at 3.9%

There is a lot to like as the European session gets underway, Fed & Trump stimulus, Brexit optimism, UK unemployment remaining at multi decade lows.

Uptrend 3

There is a lot to like as the European session gets underway, Fed & Trump stimulus, Brexit optimism, UK unemployment remaining at multi decade lows and an expected record breaking rebound in US retail sales. Needless today the positives are outweighing second wave fears sending stocks sharply higher.

The formal start of the Fed’s corporate bond buying programme boosted global sentiment. The Fed announced that it will start purchasing corporate bonds today. This is one of several emergency facilities launched amid the coronavirus pandemic.

Trump’s stimulus talk
Adding to the seemingly addictive stimulus high, the Trump administration is weighing up a $1 trillion infrastructure spend to spur on the economy in the wake of the coronavirus crisis. The plan is expected to include more traditional infrastructure work, such as roads and bridges, but is also expected to set aside money for wireless 5G and rural broadbands.
There is nothing like a fresh round of stimulus to boost risk sentiment in the markets. Fears of a second wave have been calmed by the fact that the Fed has your back and that Trump is prepared to increase spending significantly to inject life back into the economy.

Asian stocks rallied overnight, European futures are pointing to a sharply stronger open, erasing losses from the previous session. Meanwhile safe havens such as the US Dollar is trading firmly on the back foot, whilst traditional gold is extending losses from the previous session. Oil is holding onto 4% gains from Monday’s rebound.

Brexit optimism
Good news isn’t just confined to the US. Political momentum appears to have been injected into Brexit negotiations following high level talks between Boris Johnson and EU presidents. Boris saying that he sees no reason why a deal can’t be reached in July has boosted optimism that a deal is coming. The renewed optimism in both London and Brussels comes after recent talks stalled.

UK unemployment beats, claimant count soars
 The Pound barely acknowledged a mixed bag of labour market data, holding onto gains achieved overnight versus both the US Dollar and the Euro. The UK unemployment rate remained at multi decade lows of 3.9%, defying expectations of an increase to 4.7%. However, evidence of the covid-19 impact to the labour market was revealed through a sharp increase in the claimant count, which jumped by 528,900 well 50% higher than the 370,000 forecast. 

Whilst the government’s furlough scheme offers an unprecedented amount of support to the UK labour market, we can expect to see this start to unravel in the coming months as the scheme is gradually withdrawn.

US retail sales to rebound
Looking ahead the focus will shift to US retail. US retail sales are expected to post a record jump in May as states across the US started to reopen and 2.5 million Americans returned to work. An increase of 8% in sales is expected, however, this will only represent about a quarter of the historic drops experienced in March and April.

Even so hints of a turnaround and signs of the green shoots of recovery could see risk sentiment bound higher, lifting stocks whilst weighing on the safe haven US Dollar.


More from FTSE 100

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.