As countries look to lift their coronavirus lockdowns, markets are already looking beyond the dismal data.
Friday’s numbers showed the U.S. economy lost 20.5 million jobs in April, the steepest plunge in payrolls since the Great Depression, with the monthly unemployment rate surging to 14.7%.
Economists say the true extent of unemployment may be far more than the headline figures, stocks are gaining on the belief on Monday that the gradual easing of coronavirus restrictions in major economies will ensure a strong recovery starting in the final quarter of 2020 and continuing into 2021.
Asian markets are a sea of green with an index of regional shares up 1%. The Australian dollar gained as Japanese and Chinese policymakers promised more policy support.
Though nobody really knows what the reopening of the global economy will look like, investors are hoping the stimulus pumped into financial markets by central banks will cushion the blow.
European stock futures gained as millions of French are set to cautiously emerge from one of the region's strictest lockdowns on Monday. British Prime Minister Boris Johnson outlined plans on Sunday to begin gradually easing some restrictions.
But there are clear risks. First, the possibility of a second wave of infections if the restrictions are lifted too soon, which would force them to lock down their economies again, pushing stock markets to retest March lows.
Second, a resumption of the China-U.S. trade war is another risk.
Markets are stronger, but sentiment and positioning data remain decidedly more cautious, both at a retail and institutional level.
On retail, the American Association of Individual Investors’ bear-bull spread is at levels typically seen when markets are making 52-week lows, according to Morgan Stanley, while weekly positioning data showed investors remained bullish on the dollar against some emerging-market currencies.
The bond market seems to think any recovery will be slow. Two-year U.S. Treasury yields hit record lows at 0.10% on Friday while U.S. Fed fund futures are skirting negative territory.
Currency markets will have plenty to chew on the data front this week with a raft of euro zone data out this week. Brexit concern is holding back the pound with German Foreign Minister Heiko Maas saying there was a growing risk of a hard Brexit.
In emerging markets, China’s central bank on Sunday signalled more policy support and said it lowered interest rates on its standing lending facility in April, helping to soften a pull back by the yuan.
Some positive news on the corporate front with Henkel, the maker of Persil detergent and Schwarzkopf shampoo, reporting a big jump in first-quarter sales of laundry detergents and household cleaners.
EasyJet urged the UK to keep any quarantine requirements on travellers arriving in the UK for only a short period.
— A look at the day ahead from senior FX correspondent Saikat Chatterjee. The views expressed are his own —