Even at the height of the coronavirus outbreak, there were fears that the socio-economic impact of the pandemic would be dramatic and sustained over an extended period of time.
This seemed to be borne out by various data sets, from the rising unemployment rate in the US (which peaked at 15% at the beginning of April) to the projected decline of 35% in the economic output of the UK for 2020.
However, the recent US Non-Farm Payrolls data has completely bucked this trend and wrong-footed the previously solemn financial markets, by posting significant job gains in both North America and Canada. But what does this tell us, and does it mean that the economic recovery from Covid-19 is about to accelerate.
What Exactly Does the Data Tell Us?
Prior to the launch of the data, it was estimated that the US labour market would have yielded a staggering eight million jobs during Q2.
However, according to Oanda’s Senior Marketing Analyst Jeffery Halley, the US actually announced a blockbuster rise of 2.5 million jobs during the reporting period, while causing the unemployment rate to drop to 13.30% in the process.
This was initially greeted with scepticism by economists, but it was interesting to note that Canada soon followed suit by reporting its own impressive labour market rebound.
More specifically, Canada added 220,000 full-time positions during Q2, while the markets had forecast the loss of 500,000 jobs overall.
This is indicative of a consistent trend on the continent of North America, with the region’s two largest and most dominant economies showcasing sustained and sooner-than-expected economic growth. Of course, we must also consider the fact that the US is still gripped by Covid-19, with seven states reporting record-high case numbers during the last 24 hours.
There’s far greater hope for the future now, however, and there’s no doubt that economists and investors will be watching this space intently in the coming months.
Are There Still Clouds on the Horizon?
These figures are slightly tempered by the sustained rise of cases throughout the US, of course, along with the ongoing risk posed by a second spike and the relatively close proximity of North America to similar stricken countries such as Mexico and Brazil.
However, Wall Street has definitely enjoyed a significant rally on the back of the US Non-Farm Payroll release. The S&P rose by 2.62%, for example, while the NASDAQ and Dow Jones indexes soared by 2.06% and 3.15% respectively in the immediate aftermath.
The sentiment isn’t quite so strong from a global perspective, however, with the Asian markets definitely trading more cautiously and delivering only modest gains (at best) for leading indexes such as the Nikkei (up 0.90%) and the ASX 200 (up a paltry 0.20%).
The reasons for this can be largely linked to China, with the country facing its own localised spikes in infection numbers and showcasing disappointing numbers. The region certainly reported weak imports for the month of May, and the nature of the Chinese economy suggests that this will impact on exports in the coming months.
Interestingly, China has also been forced to outsource some of its production within the fashion market to Turkey as a result of Covid-19, and it’s so far unclear about just how vulnerable the region is to a second spike.
The People’s Bank of China is also unable to intervene and provide some form of stimulus, as this would most likely involve depreciating the yuan and causing the value of exports to plunge in the process.
Make no mistake; this remains a significant cloud on the horizon of the global economy, while it definitely highlights the challenges that will be faced when driving a worldwide recovery from Covid-19.
While the struggles of the Asian market may also dampen the enthusiasm triggered by the Non-Farm Payroll data, there is at least some good news emerging from North America and at least a semblance of optimism for the future.