What you need to know as markets open: Risk-on as investors cheer astonishing NFP

• A much better-than-expected US labour market report for May to keep markets in a positive mood.
• Several southern US states have already reported sharp increases in COVID-19 infections.
• AstraZeneca approached Gilead about a potential merger.
• Markets are set to open in positive territory following Friday's close on Wall Street: Forex Today: Risk-on mood to keep hurting the greenback.

It's not new news that global equity prices have been recovering from their coronavirus lows with rigour over the last couple of weeks. 

The US benchmarks, as the most commonly monitored, rightly or wrongly used as a benchmark for the global economy, have completed a V-shaped recovery.

On Friday, risk markets had a stellar end to the week buoyed by a much better-than-expected US labour market report for May.

Market highlights

The S&P 500 burst through a 78.6% Fibonacci retracement to close 81 points and 2.62% higher in a 187 point rally. May’s surprising job gain dents view that Fed will stay at zero for years and, subsequently, gold plummeted and the US dollar established a bottom which meets January lows. Long-end bond yields continued their upward march.

This is all even more significant when looking to the CHF and yen, both of which have lost their safe-haven allure, a barometer for risk-apatite returning to FX. Correlated to this, the MSCI Emerging Markets Index skyrocketed 2.6% on Friday to complete ay 61.8% Fibonacci retracement. Interesting, the XRT index (a retail ETF) has also rallied and is now higher than it was before the crisis.

Markets assume temporary joblessness around the world are falling fast

The US jobs market has come back from the brink with a record-breaking outcome. Employment surged 2.509 million despite none of the labour demand surveys suggesting this could be possible.

The median expectations were for 7.5 million job losses, as the lockdown eased. However, employment rose sharply in sectors where job losses were the heaviest in March and April.

However, what markets might need to consider in that while job losses can be reversed this quickly,  the data still shows 19.5 million fewer jobs in May than in February, and permanent unemployment is rising. 

Nevertheless, the headline unemployment rate fell to 13.3% vs 14.7%, defying expectations for a rise to 19.5% and that is a recipe for prolonged optimism.

When you couple this with the US President Donald Trump's call for additional stimulus and tax cuts, it justifies the stocks markets sharp recovery. The rebound in hiring should continue so long as there are no waves of virus and subsequent lockdowns.

Given how slow the US has been to relax social distancing, markets will assume that world-wide job creation will be just as quick, particularly as consumer-orientated retail and hospitality-related industries continue to reopen. However, caution is still warranted.

The novel coronavirus has killed more than 110,000 people in the United States, according to a Reuters tally on Sunday, as nationwide protests against racial injustice spark fears of a resurgence of the virus.

Consequently, many businesses may simply take the view that it isn’t economically viable for them to open yet. Then, the riots in big cities where office blocks will remain shut for some time to come should be problematic in next months data. Several southern US states have already reported sharp increases in COVID-19 infections, with Alabama, South Carolina and Virginia all-seeing new cases rise 35% or more in the week ended May 31 compared with the prior week, according to a Reuters analysis.

The Financial Times this weekend reported that 'Doubts remain over true scale of US jobless crisis'.

Weekend news recap

In other weekend news, we have seen the China Trade Surplus surge to a record as medical exports jump, a positive for the commodity complex. 

In actual commodity news, OPEC and allies finalising a deal to extend oil output cuts, as reported in the Wall Street Journal. Bloomberg reported that the Saudis made their biggest oil price hike in 20 years after opec+ cuts. WTI will be one to watch which has already recovered a 61.8% Fibonacci measure of the 2020 downtrend, well on track for breaking the $40 handle this week, if not in the open today on these headlines. 

There is also news that China is to strengthen global cooperation In COVID-19 vaccine trials. 

There is a Bloomberg piece which reports on how India and China Agree to Resolve Border Standoff, a positive for risk sentiment. 

Bloomberg also reported on how AstraZeneca approached Gilead about a potential merger which could be another positive for risk sentiment this week. 

The standout news for the US and global markets comes with a Wall Street Journal article which reports, "Fed Debates Whether to Reinforce Low-Rate Pledge With Yield Caps":

To stimulate the economy in the past decade with interest rates pinned near zero, the Federal Reserve made promises about how long they would remain low. Now, Fed officials are thinking hard about a new tool that would reinforce such promises by committing to buy Treasury securities in whatever amounts are needed to peg certain yields at low levels.

In Europe, Brexit remains a focus and is weighed against the progress in opening up the economies and their subsequent economic recoveries. UK PM Johnson is reported by the City AM to move "To Ease Lockdown Faster In Face Of Mass Job Losses" while he is reported by the same news agency "To Change 'Defective' Brexit Withdrawal Agreement".

According to Reuters, the "Support For Johnson's Conservatives Falls As COVID Deaths Rise"

The Times reports on the "Bank Of England Alert Over £36 Bln Toxic Loans".

Chart of The Week

• Chart of The Week: Gold bears burst into the barroom-brawl zone