China to miss trade deal target

Markets in Asia rallied following on from gains on Wall Street on Friday despite another torrid reading of employment. Friday’s US jobs reported showed that the unemployment rate had jumped to above 14% while the non-farm payroll reading showed 20 million people lost their jobs in April. Despite the dire readings markets on Wall Street rallied as the number was slightly better than the 22 million expected.

China will be in focus over the next couple of days as we expected data to show that they will fall short of US goods purchases in breach of the US-China trade deal. Projections show that exports of US goods to China could be around $60 billion for the whole of 2020, much lower than the $186.6 billion agreed in the Phase One trade deal between the two nations.

The shortfall is obviously due to the Coronavirus pandemic which brought the global economy to a virtual standstill for the last 3 months. However, the reason behind the shortfall is likely to cause much concern for Donald Trump who has already ratcheted up his anti-China rhetoric over the last few weeks.

Boris Johnson’s plan to begin the phased and conditional reopening of the UK economy has come under significant fire from many for being unclear and risking a second spike in the virus in the UK. In an address to the British people on Sunday evening the PM dropped his line of “Stay at Home” to “Stay Alert” also stating that those who could not work from home should actively look to return to work, but without using public transport.

Sterling rallied against the US dollar on the back of the news as whether clear or unclear, this us certainly the first step on the road to recovery. We could see more movement in the Pound over the course of Monday as the PM is expected to give more details on the plan when he addresses the House of Commons on Monday.

He will publish more details of his 3-stage plan in a 50 page document released just before he speaks in the commons. Market movement on the back of this event is unlikely to focus on the clarity of the statement, but more on whether the key stages will realistically be met before the second phase of the economic reopening can commence. For Sterling and the FTSE the soul focus should be the economy, rather than the health aspect.

It’s a quite start to the week in terms of macroeconomic readings with no major data from the US, UK or Europe to contend with. However, as the week moves the level and importance of data will increase. So for Monday, Friday’s payrolls will still be in focus as the employment picture will play such a key role in recovery.