Dow Futures Gain On US-China Trade Talks; April Employment Data Shows 20.5 Million Coronavirus Job Losses, Unemployment Rate at 14.7%

Stocks are looking for a solid Friday open following fresh U.S.-China trade talks, but April employment data revealed savage job losses amid the peak of the coronavirus pandemic.

The Friday Market Minute

  • Global stocks book cautious gains after U.S.-China trade talks ease tensions between the world's two biggest economies.
  • Top trade reps hold their first call since January, with both sides hailing 'constructive' dialogue on the Phase One deal.
  • April employment report shows that an unprecedented 20.5 million American jobs were lost last month, boosting the unemployment rate to 14.7%, the highest since the 1940s.
  • U.S. 2-year Treasury notes hold near record lows as Fed Funds futures price in negative interest rates for the first time in history.
  • Wall Street futures suggest a firmer open ahead of the April Employment report at 8:30 am Eastern time.

Wall Street futures pushed higher Friday, following on from solid gains in Europe and Asia, as investors reacted to news of trade talks between Washington and Beijing and reacted to the worst tally of U.S. job losses in history in the wake of the coronavirus pandemic.

However, the April U.S. jobs report released at 8:30 am Eastern time, is likely to cast a pall over-optimism on Wall Street Friday as the Labor Department reported that an unprecedented 20.5 million American jobs were lost last month as the nation closed-up shop to slow the spread of the deadly coronavirus. 

The headline unemployment rate rose to 14.7%, well shy of the 16.4% consensus, while the March tally was increased to 870,000 from a prior estimate of 701,00

"The extremely high unemployment readings are not likely to be permanent since they largely reflect government-mandated business shutdowns, and states are already in the process of gradually reopening their economies," said Jason Price, chief investment officer in the private wealth division of Glenmede.

"The degree to which the labor market improves from here will be dependent on the willingness of state and local governments to reopen their respective economies as well as the coincident data on the spread of the disease within each region," he added. 

Top trade negotiators from the U.S. and China -- including Vice Premier Liu He, Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer -- held a phone call Friday, their first since signing the $200 billion Phase One trade agreement in January, that both sides deemed 'constructive', even amid renewed pressure from the White House over Beijing's handling of the coronavirus pandemic.

Both sides "also agreed that in spite of the current global health emergency, both countries fully expect to meet their obligations under the agreement in a timely manner," the USTR said in a statement. 

The brief detente between the world's two biggest economies eased concerns that President Donald Trump would, as he had warned earlier this week, 'terminate' the Phase One deal if he wasn't satisfied that China was purchasing the requisite level of U.S. made goods and boosted stocks in key markets around the world.

Still, trade optimism, trillions in Federal Reserve liquidity and government stimulus continue to underpin U.S. stocks, which are now only 17.8% from their late-February record high, with gains looking to extend into the Friday session.

Futures contracts tied to the Dow Jones Industrial Average are indicating a 300 point opening bell gain while those linked to the S&P 500 are priced for a 38 point advance. Contracts tied to the Nasdaq Composite, which edged into positive territory for the year last night, are looking at a 110 point head start heading into the final trading day of the week.

The U.S. dollar index, which follows the greenback's moves against larger currency rivals around the world, eased to 99.715 in overnight trading as benchmark 2-year bond yields bounced from a record low of 0.129% to trade at 0.139% as Fed Funds futures contracts begin to price in negative U.S. interest rates for the first time in history. 

The dollar weakness helped oil prices book modest overnight gains, with crude extending renewing its recent rally amid an easing of the U.S. supply glut, stronger-than-expected China import data, and the start of OPEC+ production cuts.

Front-month WTI futures contracts for June delivery, the new benchmark for U.S. prices, were last seen 51 cents higher from their Thursday close in New York and changing hands at $24.06 per barrel.

Brent futures for July delivery, which benchmark around 60% of global crude purchases, were marked 33 cents higher at $29.79 per barrel.

European stocks were cautiously higher in the early Friday session, with the Stoxx 600 rising 0.65% and the trade-sensitive DAX index gaining 0.75% following news of the U.S.-China talks, with solid corporate earnings, the slow re-opening of major economies around the region and a weaker euro helping support gains.

Overnight in Asia, Japan's Nikkei 225 surged 2.6% to close at 20,179.09 points as news of the U.S.-China phone call hit the tape, offsetting spending and service sector data that point to a 30% second-quarter GDP contraction for the world's third-largest economy.

The region-wide MSCI ex-Japan benchmark, meanwhile, was marked 1.06% higher heading into the final hours of trading thanks to gains in Hong Kong and South Korea.