Week from 1 to 7 June 2020
Incredible but true! All the evidence suggests that U.S. employers have rehired millions of workers after pandemic-induced layoffs. The May jobs report showed an unexpected rise in non-farm payrolls across the economy, most of the job gains (+2.509mio) coming from the sectors which were hardest hit by the health crisis (i.e. construction, leisure, personal services, and retail more specifically). The unemployment rate fell to 13.3% last month (vs 14.7% in April) even though it was initially projected to rise to 19.8%!
Unsurprisingly, stocks rallied strongly following this report. The Dow Jones Industrial Average jumped 6.81%, the S&P 500 rose 4.91% at 3,193.93 while the Nasdaq Composite added 3.42%. The latter is now just 0.25% away from a record high hit in mid-February. Small cap stocks beat their large cap counterparts (Russell 2000 up 8.11%). Furthermore, it is worth noting that a major sector rotation is underway. All the sectors finished the week in positive territory but the worst performers since the beginning of the year continued to significantly outperform the broader market. Energy (+15.41%) led the pack as oil prices skyrocketed (WTI crude: +11.44%) after OPEC and Russia agreed to extend record oil production cuts through July. Hopes for economic recovery also underpinned other cyclical sectors such as financials (+12.16%) and industrials (+10.52%). By contrast, health care (+0.23%), consumer staples (+1.89%), utilities (+2.36%), communication services (+2.38%), and technology (+3.65%) lagged again.
Emerging markets (MSCI EM up 7.77%), Japan (Nikkei 225 up 4.51%), and China (Shanghai Composite up 2.75%) followed suit, even though Chinese exports fell 3.3% in May from a year earlier while imports tumbled 16.7%.
European equity markets ended the week on an even stronger note (MSCI EMU up 9.32%), helped by more support from the European Central Bank which has just expanded its massive bond-buying program (up to €1.35 trillion), thereby offering up another massive jolt of stimulus for the region, in line with that of the Federal Reserve. As a result, the EUR-USD pair closed higher at 1.1313 (+1.68% WTD, third positive week in a row).
Sovereign bond yield also rose in reaction: Germany 10-year bond yield moving from -0.45% to -0.28%, yield on the U.S. 10-Year now standing at 0.91% (more-than-two-month high). The U.S. 3-month T-Bill rate remained virtually unchanged at 0.15%.
By contrast, the improved sentiment drove credit indices sharply higher (IG EUR: +1.16%, IG USD: +1.28%, HY EUR: +2.68%, HY USD: +3.01%, emerging debt in local currencies: +2.61%).
Lastly, gold futures fell 3.49% to $1,676.20/oz.
Find the full report here: https://www.trackinsight.com/en/weekly-flow-report/2020-06-05/global