Heightened tensions between the U.S. and China will mean that risk sentiment remains fragile this week, while the highlight of the economic calendar will be Friday’s May non-farm payrolls report. Ahead of that, investors will have the chance to parse other economic data, including initial jobless claims and factory orders. The European Central Bank is widely expected to top-up its emergency asset purchasing program and the UK and European Union are to hold another round of virtual Brexit talks. Here’s what you need to know to start your week.
- U.S. unemployment seen soaring to near 20%
Friday’s U.S. jobs report is expected to show that the unemployment rate rose to 19.7% last month with employers forecast to have cut 8.25 million jobs, compared with the record 20.5 million jobs lost in April.
While some encouraging signs in the employment picture have emerged in recent weeks as some workers rejoin jobs with businesses starting to reopen in the second half of the month, these changes are unlikely to be reflected in the May data.
Any positive surprise, however, is likely to be cheered by stock market bulls eager to grasp at signs of a rebound from the coronavirus induced economic slump.
- Jobless claims, ISM data
While Federal Reserve officials are now in the traditional blackout period ahead of their next policy meeting in June the calendar this week features ISM manufacturing data Monday, Thursday’s jobless claims report and reports on factory orders and private sector hiring.
In the euro zone investors will be looking at figures on German factory orders for April while the UK calendar has the final manufacturing PMI on Monday and then the final services PMI on Wednesday.
- U.S.-China standoff
The standoff between the worlds two largest economies over Beijing’s new security legislation for Hong Kong, which investors fear could erode the city’s freedoms, looks set to continue this week.
U.S. President Donald Trump has vowed to end Hong Kong’s special status if Beijing imposes new national security laws on the on the Asian financial center, but China’s state media has pushed back, saying this would hurt the United States more than China.
Whether Trump goes so far as to scrap his Phase 1 trade deal with China or merely takes some symbolic steps around sanctions and visas for Hong Kong citizens could determine how long the latest global stock market rally will last.
- ECB to boost stimulus program
While on the face of it the announcement of the 750 billion euro EU plan to prop up economies hit by the coronavirus pandemic has eased some pressure on the ECB, officials are still expected to unveil fresh stimulus on Thursday.
The EU recovery fund will take time to set up and will likely face hurdles on the way and the ECB is burning through its emergency asset purchases, which will likely run dry by October – unless expanded.
The ECB is widely expected to announce a 500 billion-euro ($555 billion) increase to its Pandemic Emergence Purchase Program and extend is duration until mid-2021.
The central bank will also publish updated economic projections which could confirm President Christine Lagarde’s assessment that the bloc’s economy is in the midst of a much-deeper downturn than initially believed.
- Brexit talks
Another round of Brexit talks get underway on Tuesday ahead of the June 18-19 EU summit by which time London needs to make up its mind about asking for an extension to the transition agreement.
There’s not much time left until the December 31 Brexit deadline, when the two sides will part ways – with or without a trade deal in place.
Negotiators have not made much progress and the EU has urged Britain to make a bigger effort and be more realistic about what it can achieve in talks.
The resulting uncertainty has pinned sterling close to its lowest levels in almost 30 years. And as if a potentially messy Brexit was not enough, the British currency is also battling with the prospect of negative interest rates and a prolonged recession.