Market Outlook

The Nonfarm Payrolls last Friday showed 20.5 million job cuts in April, the biggest drop in history since 1939. However, the figures are still better than the expectations of 21.5 million job cuts. The unemployment rate skyrocketed to 14.7%, the highest level since the Great Depression, which was still lower than market expectations of 16%.

The initial jobless claims fell to 3.169 million last week, a drop of five consecutive weeks, which was still more than the expectations, around 3 million. The continuous claims rose to 22.647 million, far more than 20 million which was expected. The numbers indicate that the current situation of the US labor market was worrying and forecast a very gloomy result of the NFP on Friday, especially after the ADP employment report. It is now expected 21.5 million job cuts in April NFP and the unemployment rate will jump to 16%.

President Trump said that he would review the Phase 1 trade deal signed in January, whether China has fulfilled the commitment regarding the purchase of US goods. He said that he is able to issue a report within a week or two. Investors were worried about the tension between China and the US after the news, triggering the market move. ZFX analyst Jacob Leung said that, oil prices finally retraced and the market sentiment turned a bit negative on Wednesday, and the ADP figures also “more or less” triggered the safe-haven demand. Pay attention to the strength of the greenback, which is likely to reflect change in the market sentiment.

Oil prices continue the rebound “move”. The June contract of WTI crude futures surged over 20% again, a big rally of 5 consecutive days, which is supportive to the market sentiment. The market is still looking forward to the reopening of the global economy thus pushing the energy demand, boosting the oil prices. But, Fed Vice Chairman Clarida said that, the US economy is already in recession and the unemployment rate is going to surge to numbers that probably a record high since the 1940s. The pessimistic speech hit the sentiment but the three major Wall Street indexes still edged higher.

Oil prices are still the key concern of the market. It is reported that the crude inventory builds at Cushing, a key place for WTI physical delivery and storage, is slower than expected. In addition, the market expects countries will restart their economies by steps, and the OPEC+ have also begun the production cuts under the new agreement, which also further boosting the oil prices. The June contract for WTI crude futures climbed above the $20 mark, a rally of four consecutive days.

The Fed kept the rates unchanged as expected but it promised to use full range of tools to support the US economy to tackle considerable risk from the coronavirus pandemic. The ECB also kept the rates unchanged and the Pandemic Emergency Purchase Program remained unchanged at 750 billion euros, but it lowered the rate of targeted longer term refinancing operations (TLTRO).

The Consumer Confidence Index dropped sharply to 86.9 in April, reflecting the severe impact on the U.S. economy under the global pandemic, which hit the market sentiment on Tuesday. On the other hand, this week investors are looking forward to the result of the FOMC meeting. The market turned cautious, making the three major Wall Street indexes rose at the opening, but finally failed to maintain the recent strength.

Oil prices plunged again. The June contract for WTI crude futures dropped more than 20%, and the June contract for Brent crude also fell below $20. Besides the concern of global crude oil storage capacity, the market is worried that the United States Oil Fund (USO), the world's largest crude oil ETF,  will sell all of its June contracts of WTI and transfer its holding to the longer-term contracts, which added selling pressure to oil prices. However, due to certain expectations of the decline in oil prices, the news has just little impact on investor sentiment.

Oil prices extended the rebound, and investors are expecting that some states in the US will ease the lockdown measures by steps, and US President Trump signed the new economic stimulus packages, supporting the Wall Street's three major indexes all rose more than 1%. The market maintains optimism, which make the dollar lower last Friday. The Volatility Index (VIX), which usually reflects the level of risk or investor panic, fell to its lowest level since early March.

The initial jobless claims in the US last week fell for three consecutive weeks to 4.427 million, while the continuing claims jumped to the record high 15.976 million. As both figures were slightly better than expected, investors believe that the most severe situation may be over for the US labor market. In addition, the US Congress has passed the new economic stimulus plan, which further boosted risk appetite, that supporting the global stock market. However, a report from the WHO showed the failure of the clinical trial of “Remdesivir”. Sentiment turned to risk-off, so that all three Wall Street indexes retraced all the gain on Thursday, and closed mixed.