By Geoffrey Smith
Investing.com -- Weekly data for initial jobless claims are expected to show a further slowdown, but remain at a staggeringly high 3 million. Stocks are set to open higher after a mixed bag of earnings late on Wednesday. China's exports rebounded in April, but due largely to a one-off surge in medical goods. A 14% drop in imports still suggests its economy is in ropey condition. The Bank of England held fire but predicted the U.K. economy would shrink 14% this year. And the dollar hit a new all-time high against the Turkish lira as Turkey slides towards a full-blown balance of payments crisis. Here's what you need to know in financial markets on Thursday, May 7th.
1. Initial jobless claims set to slow a bit further
Another 3 million Americans are expected to have filed initial claims for jobless benefits last week, according to analysts polled by Investing.com.
That would be a further slowdown from 3.8 million registered the previous week but still an indicator of extreme stress for the economy, following hard on the heels of ADP’s assessment that the private sector shed over 20 million jobs in April.
Continuing claims are expected to have risen by just under 2 million to 19.91 million.
The Department of Labor publishes its data at 8:30 AM ET (1230 GMT).
2. China's exports post surprise rebound
China’s exports posted a surprise 3.5% increase in year-on-year terms in April, confounding expectations for a decline of more than 15%.
However, the truer reflection of the state of the Chinese economy was in its import data, which fell by 14.2% on the year, more than expected.
The discrepancy is explained by a surge in exports of medical gear to the rest of the world against the backdrop of the Covid-19 pandemic. Another growth item, noted analysts at ING, was components for 5G telecom networks, something likely to raise hackles in the U.S. given its campaign against Huawei in particular.
President Donald Trump on Wednesday repeated his threat to abandon the ‘phase 1’ trade deal with China if it fails to buy the promised volume of U.S. exports. That deal preceded the collapse of Chinese import demand.
3. Stocks set to open higher; PayPal disappoints, Peloton (NASDAQ:PTON)'s close to breakeven
U.S. stock markets are set to open higher, reversing Wednesday’s losses and shrugging off some mixed earnings reports late on Wednesday.
By 6:30 AM ET (1030 GMT), the Dow Jones 30 Futures contract was up 320 points, or 1.4%, while the S&P 500 Futures contract was up 1.5% and the Nasdaq 100 futures contract was up 1.6%.
In focus in early trade will be PayPal, which failed to cash in on the boom in e-commerce to the degree expected in the first quarter, and Square, which failed to break even, disappointing hopes for a quarterly profit.
By contrast, Twilio, Fox and Liberty Global (NASDAQ:LBTYA) all beat expectations, the last of these topping off the quarter by agreeing to merge its U.K. assets with Telefonica's (NYSE:TEF) in a $38 billion deal on Thursday – the biggest piece of M&A in Europe since the pandemic erupted.
Peloton stock is also set for a strong opening after it nearly broke even in the quarter thanks to a boom in working-out-from-home, while AB Inbev rose in Europe after reporting a rebound in Chinese sales.
4. Bank of England holds fire, Norway cuts
The British pound edged up after the Bank of England held off from increasing its quantitative easing program – although new Governor Andrew Bailey indicated that it may well do so in the future. Two of the BoE’s nine policymakers already voted for an increase at yesterday’s Monetary Policy Committee meeting. The BoE expects U.K. GDP to fall 14% this year.
The BoE also signaled it was cutting U.K. banks more slack as regards their capital ratios, pushing up the shares of the big four by between 1.2% and 3.5%.
Prime Minister Boris Johnson is expected to outline a timetable for easing lockdown restrictions later, two days after the U.K. overtook Italy to register the highest death toll in Europe from Covid-19, with over 30,000 deaths.
Elsewhere in Europe Thursday, Norway's central bank cut its key rate to zero but indicated it won't go below that level.
5. Turkish lira falls to new low as crisis looms
Turkey, one of the world’s largest emerging economies outside China and India, is spiraling towards a balance of payments crisis.
The dollar hit a new all-time high against the lira overnight at 7.2862, before retracing to 7.2668 by 6:30 AM ET.
The country is beset by wide budget and current account deficits, and its banks and corporations have to repay over $20 billion in foreign-currency debt next year. Meanwhile, central bank reserves have fallen sharply and many analysts suspect official reserves figures to be inflated by the borrowing of dollars from the local banking system.
Turkey, a NATO member and long-time U.S. ally, was conspicuously not among the countries granted a dollar swap line by the Federal Reserve in March. Relations with the U.S. have deteriorated sharply in recent years, not least due to President Erdogan’s decision to buy sophisticated air defense systems from Russia. That worsening relationship may also complicate its efforts to negotiate an IMF bailout, analysts say.