Source: Refinitiv Datastream Date: 03/07/2020

While an encouraging step in the right direction, we are not getting overly carried away by yesterday’s data. It is worth noting that the vast majority of those jobs lost were deemed as temporary lay-offs, with most of the subsequent job gains merely re-hires in sectors such as retail and hospitality that are now up and running again post-lockdown. There are also suggestions that many employers may simply have re-hired staff in order to qualify for the government’s PPP loan forgiveness programme, which would skew the data slightly higher. Another problem with the data, and one of the reasons why it was largely overlooked by investors, is that it only covers the one month period up to the second week of June, i.e before the latest surge higher in US virus cases.

The result was a limited reaction in currency markets to the data’s release, although the dollar did strengthen across the board later in the day – we think due to growing concerns regarding the latest COVID-19 infection numbers, rather than the data itself. We think that the real test will be how the US labour market holds up once the government’s extra unemployment benefit runs out at the end of the month. Should this be extended, which seems likely, that would probably be seen a positive for risk assets.

Today looks set to be a very quiet one in the markets. Aside from this morning’s revised PMI data, we expect currencies to be driven largely by the latest COVID numbers.