By Geoffrey Smith
Investing.com -- It's payrolls day, but this month's labor market report won't tell you much that you don't know already as the cut-off date predates the start of Covid-19-related lockdowns across the U.S. Anyone needing further evidence of the economic ravages can look across the Atlantic to Europe, where Markit's PMIs fell to their lowest ever levels in March. The dollar strengthened accordingly, and U.S. stock futures are looking at a weak opening. Oil prices continued to rise, however, as newswire reports fleshed out the details of a possible deal to cut global crude supply. And the U.S.'s $350 billion plan to aid small businesses gets up and running today - but banks are struggling to push the guaranteed loans out. Here's what you need to know in financial markets on Friday, April 3rd.
1. Payrolls to tell no more than half the story
It’s payrolls day – with a difference. The monthly employment report from the U.S., due at 8:30 AM ET, is likely to be bad, but won’t tell anything like the whole story given that the cut-off date is the week of March 12, that is, before any major lockdowns in the U.S.
The reality, as indicated by the weekly jobless claims data on Thursday, is much worse. Over 9 million Americans have filed for unemployment benefits in the last two weeks. That’s around 6% of the workforce.
The Cleveland Federal Reserve President Loretta Mester said the jobless rate could reach 15% in the near future, echoing comments earlier this week by colleague James Bullard.
2. Oil prices hit highest since mid-March on supply deal hopes
Oil prices climbed to their highest in two and a half weeks after a spate of newswire reports citing mostly unnamed sources added further details to President Donald Trump’s bold claim of a likely deal to end the global price war. U.S. crude futures rose 4.2% to $26.41 a barrel, while global benchmark Brent soared back above $30 to trade at $32.59 a barrel, up 8.9%.
The OPEC+ format, which includes both Saudi Arabia and Russia, has called an emergency meeting for Monday. However, Reuters reported that the group would insist on a cut in U.S. production as part of any deal.
Other reports cited sources saying a cut of 10 million barrels a day, roughly 10% of world oil supply, was “realistic”. Trump had said the cut could be up to 15 million barrels a day. He has also said he will meet with U.S. oil bosses today, with meetings possibly stretching into the weekend.
President Vladimir Putin is also due to meet with Russian oil producers Friday, the Kremlin said.
3. Stocks set to open lower; dollar strengthens again
U.S. stock markets are set to open lower as the market absorbs the implication of Thursday’s jobless claims data.
By 6:35 AM ET (1035 GMT), the Dow Jones 30 Futures contract was down 236 points or 1.1% at 21,036 points. TheS&P 500 Futures was down 1.1% and the Nasdaq 100 contract was down 1.0%.
The dollar index rose 0.5% to its highest in over a week as both the euro and sterling fell sharply in the wake of apocalyptic readings from IHS Markit’s purchasing manager indices. However, the dollar gained against both currency commodities and haven currencies such as the yen and Swiss franc, suggesting that the tension in global funding markets has further to run.
Elsewhere, China’s central bank cut its reserve requirements again in an effort to prop up domestic liquidity – even though the virus peaked over a month ago in that country and anecdotal reports suggest a broad, if slow, rebound in activity.
4. Europe's PMI horror show
Europe is facing a recession deeper than in 2008/9, judging by the look of the latest survey data. IHSMarkit revised down its March PMIs across the region, due mainly to shocking declines in services activity, which makes up the bulk of all European economies, even Germany’s.
In Italy, the services PMI fell to 17.4, from 52.1 in February. That’s the lowest number Markit has ever reported for any of its PMIs, ever - worse even than Greece at the depths of its recession in the last decade.
Claus Vistesen, eurozone economist with Pantheon Macroeconomics estimates that eurozone GDP fell 4% in the first quarter and will shrink a further 10% in the current quarter, “based on the notion that activity will be at a hold in April and most of May.”
5. Disney , GE furlough workers; trouble with SBA loan plan
Walt Disney (NYSE:DIS) and General Electric (NYSE:GE) said they will furlough thousands of workers, as the Covid-19 outbreak reaches ever deeper into U.S. economic life.
Disney said the cuts will apply to all its U.S. divisions. The company has shut its domestic parks indefinitely, while its cruise division has suspended sailings. In addition, blockbuster movie releases have been pushed back to next year.
GE’s cuts affect mainly the aviation division, where future demand is being rapidly revised downwards due to the collapse in air travel and the uncertainty over how quickly and fully it will rebound.
Elsewhere, there were signs that the U.S. government’s $350 billion plan to help small businesses faces problems. JPMorgan (NYSE:JPM) said it wouldn’t be able to process applications for government-guaranteed loans, which can be submitted from today. Bank of America (NYSE:BAC) is limiting applications to existing customers.
The Federal Reserve’s planned Main Street lending facility is also facing delays. Boston Fed President Eric Rosengren said Wednesday that it won’t be ready for “another couple weeks.”