Market Overview

A very strong U.S. jobs report on Thursday created necessary conditions for global markets to continue the rally on faster recovery expectations. Whether these conditions are sufficient, will probably be shown next week, since today the American stock exchanges are closed for the Independence Day celebrations in the United States. However, even in the context of limited trading activity, the signs of growth were additionally appended on Friday by both Chinese and European indicators of a favourable business environment.

The Chinese service sector made another move toward improvement with the Caixin Purchasing Managers Index (PMI) released at 58.4 points in June. This is the highest reading that has been observed since 2012. It is not surprising that China is recovering faster than any other country, because in China the start of the pandemic became known in earlier stages, and they had enough time and determination to bring it under control. However, the pace of activity in the previously quarantined service sector is impressive, and this is good news for all global economic players.

Better than expected data also came from France, where the Services PMI was 50.7 in June after 31.1 in May, with the Markit Composite PMI reading at 51.7 points. In Germany, both Service and Composite PMI readings were above 47 points against 45.8 points in average estimated by Bloomberg expert polls after just 32.3 points of Composite PMI a month before. The Italian Services PMI was at 46.4, which is just a little bit below the average expectations near the 47.0 level. The Spanish Services PMI came in at 50.2 points. So, finally, the PMI services indices for the European Union business community showed that the region is picking up fast, although not quite ending its decline, climbing to 48.3 in June from 30.5 in May. Because, typically, a PMI number below 50 indicates that activity is still contracting. Statisticians in the United Kingdom also calculated the Service PMI at 47.1 on Friday against 29.0 for May, although the U.K. may have to fight the remnants of the COVID-19 infection probably for a longer time than continental Europe.

As for the American employment data, they are just as much perfect as possible at present after-quarantine conditions. The U.S. economy happily added 4.8 million jobs in June, while the numbers for May were also revised up by nearly 200,000 jobs to 2.7 million. It is worth recalling that May's previous 2.5 million jobs was a very big surprise, when the figure was released in the beginning of June. And it raised a lot of questions, but even officials from the team of the former U.S. President Barack Obama said in public that political manipulation of this figure is impossible, based on their own experience.

The general U3 unemployment rate came in at 11.1%, below both the 12.4% reading that was widely expected and below last month’s figure of 13.3%. The overall U6 unemployment rate also declined to 18% from 21.2% in May, which includes the so-called marginally attached to the labour force people, plus total employed part time workers for economic reasons. Taken together, the data is so good that it will unlikely  be spoiled by the average hourly earnings, which fell by a worse-than-anticipated -1.2% m/m, likely on the back of previously laid off workers in low-paid professions who returned to work. June's results may not be disturbed even by the clear fact that the U.S. economy still has around 15 million fewer jobs than it had in February.

A fly in the ointment may be suggested with the understanding that the non-farm payrolls survey was conducted in early-to mid-June, when almost every U.S. state had lifted restriction orders, but before the danger of the virus started to resurge over the last weeks. So, the worry could be renewed as data was released now for the period when there was a very good "window" of opportunities, as the labour market may not recover  as fast because a new record daily number of 55,000 infection cases was just detected by official tests yesterday. However, these warning thoughts may be ignored by markets, at least for a while, as the stock indexes in America and Europe reacted to the report in an extremely positively way. The high-tech Nasdaq index broke another historical record, as the broad-market S&P500 index rose for two hours and reached mid-June levels. Pan-European indexes climbed even higher before moderate profit-taking led to a pullback. However, this was the move just a little below, and it can be perceived as a very natural process before a long weekend. To conclude, it seems that a good base is created by both the news and on the market charts for a new jump to the higher levels soon.

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.