UK100, H1
European stock markets rallied as risk appetite returns. GER30 and UK100 posted gains of 2.6% and 2.5% respectively earlier, after a broad move higher in Asia overnight. However, both have cooled from day highs amid news of continued friction between North & South Korea and reports from India saying that at least three of its soldiers have died in a “violent” clash with Chinese troops at a section of their unmarked border.¹ Sentiment started to improve in the later part of the US session yesterday and hopes of additional fiscal stimulus in the US, coupled with the start of the Fed’s corporate bond buying program, helped to boost confidence and let markets see past new lockdown measures in China, which were widened further. US futures are slightly down from earlier highs, but still up 1 to 1.4% with the Dow Jones outperforming.
Sterling and the UK100 got additional support from labour market data being better than expected (at least the headlines) and improved sentiment surrounding the UK-EU trade talks and their respectively red lines of “access to fisheries” and “level playing fields”.
UK jobless numbers lifted a further 529K in April – reaching 7.8% of the work force. The ILO unemployment rate remained steady at 3.9% in the three months to April, against expectations for a sharp rise. Earnings growth meanwhile decelerated to 1.0% in the three months to April from 2.3% in the previous period. Excluding bonuses, the rate dropped to 1.7% from 2.7%. The impact of lockdowns was dampened by extended furlough schemes, which are set to be gradually phased out as the economy re-opens. How the labour market fares in the medium term remains to be seen and will not just depend on virus developments, but also whether there will be a follow-on trade deal with the EU signed off before the end of the transition period.
Both UK100 and GER30 rallied beyond R1 resistance before receding into 200-hour moving average support, at 6,200 and 12,160 respectively.
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Stuart Cowell
Head Market Analyst
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