Stocks Head Lower Despite UK Unemployment Rate Holding

Asian markets traded lower and European bourses are set to open on the back foot as US – Chinese tensions, in addition to worrying trends surrounding the Chinese consumer, drag on market sentiment. Negativity in the market is overshadowing better than expected Chinese economic growth and better than forecast UK jobs data.

Chinese GDP rebounded strongly in the second quarter, +3.2% from Q1’s record contraction. This was ahead of the +2.5% forecast. However, more worryingly retail sales fell for a 5th straight month. The data highlights the caution being exercised by consumers, who are still choosing to avoid places of possible large crowds and who are reining in their spending over concerns of what lies ahead.

China was the first nation to suffer from covid-19 and go into lockdown. They are ahead of the West on the recovery curve. However, the cautious consumer could well be a signal of what we can expect across the UK or the US and ties in with BoE policy maker Silvana Tenreyo’s forecast that wary consumers and unemployment could prevent a full economic recovery.

UK unemployment remains at 3.9%
For now, Tenreyo’s concerns are not being played out in the labour market. Jobs data continues to defy the reality of the deepest economic downturn in 300 years. Unemployment remained steady at 3.9%, the number of people claiming unemployment benefits actually declined by 28,000 rather than increasing by 250,000 and average earnings excluding bonuses jumped +0.7%.

Even with the governments job retention scheme clouding the true impact of the coronavirus crisis on the labour market, these are still robust numbers which defy the reality that the UK economy is 25% smaller now compared to February.

Despite today’s surprise, there is little doubt that the worst is yet to come for the labour market. The support from the government has delayed the impact of the crisis on the labour market, which will start showing through as the furlough scheme tapers. Rishi Sunak will be hoping that the tapering happens in conjunction with rising demand which could save the jobs market from any harsh blows.

But rest assured the unemployment level will rise going forward. The Pound hasn’t been fooled, and GBP/USD trades -0.25%, whilst sterling dropped -0.1% versus the Euro.

US retail sales
US retail sales later today will be watched closely. Expectations are for a 5% mom in June, after a 17.7% surge in May. There is a good chance that we are still seeing pent up demand being released here. However, any weakness particularly after China’s data could deeply unsettle investors.

Risk appetite has also taken a hit as US – Chinese tensions have notched up a level as the White House threatens more sanctions on Chinese tech firms, with TikTok and WeChat now in the firing line.

ECB
The Euro is trading on the back foot versus the safe haven USD but advancing versus GBP as investors look ahead to the ECB monetary policy announcement. The ECB are not expected to move on policy after increasing the Pandemic Emergency Purchase Programme by a more than expected €600 billion last month and amid tentative signs of economic recovery in the region. We can expect the ECB to return to the familiar wait and see mode.

FTSE Chart

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Products and services available depend on your location and the entity holding your account. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.