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Three Key Fundamental Takeaways This Week




1) US Jobs Data smashes consensus expectations


Risk assets finished what had already been a very strong week with BIG gains, after the official US labour market report for May beat expectations by a staggering margin.


2.5mln jobs were added to the economy in May, bringing the unemployment rate down to 13.3%, against expectations for 8mln in jobs losses and an unemployment rate of 19.8%.

Clearly the US economy is currently in MUCH better shape than anyone had previously though, hence the rally in global equities, crude oil markets and risk FX and the sell off in havens such as gold, bond and JPY.


Over the past few months, analysts have watched the stock market rally with scepticism; “out of touch with the economic fundamentals on the ground” is the way they framed the move higher in global risk assets. However, this latest batch of US data shows that a V-shaped recovery most certainly is possible… so were the bulls pushing stocks higher right all along?





2) ECB backs up its words with actions


The ECB over-delivered on market expectations on Thursday, increasing the size of their PEPP QE programme by EUR 600bln (markets expected EUR 500bln), with the programme extended until 2021, and with reinvestment until at least 2022.


What is striking about this ECB is how unified it has been behind the need for such measures (in the past, the hawks have deplored the use of QE).


Lagarde’s ECB is showing that it is willing to take the steps necessary to ensure the continuity of the Eurozone and to facilitate its recovery from the Covid-19 pandemic recession.


This, alongside increasing determination among the EU27 for a big economic recovery fund (funded by joint EU debt, a big step towards fiscal union), is a big plus for Eurozone (and global) risk appetite – hence why European equities have been leading global risk assets higher over the past few weeks.


3) US/China Phase One Trade Deal is still alive


Growing tensions between the US and China over the past few weeks on issues such as Hong Kong has been pretty much the only thing that has been able to risk assets lower.


Things have clearly got heated, with measures and countermeasures being


enacted/threatened. But no one has said anything about cancelling the Phase One trade deal. On the contrary, China hastily moved to deny reports that it had not been fulfilling its soy-bean purchase promises (part of the agricultural purchases part of the deal).


Moreover, US officials said they are happy with the deal and that China continues to fulfill its side of the bargain…


As long as neither side does anything that would put the deal in jeopardy, escalation between the two sides will likely be kept to rhetoric and symbolic action, which ought to limit the downside this risk poses to risk assets. 


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