Friday, July 3, 2020

Asia Times: NonFarm Payrolls surge past expectations in June, but jobless benefits suggest that hiring may likely be affected by increasing Covid-19 cases in the US

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  • Dollar
  • Gold
  • Yen
  • Stocks
  • Oil
  • US payrolls

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Market Recap: NonFarm Payrolls surge past expectations in June, but jobless benefits suggest that hiring may likely be affected by increasing Covid-19 cases in the US

Stocks on Wall Street rose on Thursday, the fourth straight session of gains for the S&P500 and the Nasdaq, thanks to better-than-expected employment data in the US. The US Bureau of Labor Statistics' (BLS) labour market report for June indicated that the US economy added 4.8 million jobs, much higher than the median economist forecast at 3.23 million. The unemployment rate in the US for June beat expectations as well, dipping to 11.1% in June from 13.3%. The better-than-expected employment data helped extend optimism from earlier in the week to allow all three major indices in the US to close the week more than 3% higher, recovering most, if not all of the losses from last week's sell off. Worries on climbing Covid-19 cases in the US continued to be largely ignored, even after Florida reported its biggest jump in cases of the novel corona virus and hospitalisations yet. Escalating tensions between the US and China was also likely mostly ignored in the equities market, with equities ending the day trading session higher after the Senate passed a bill putting sanctions on Chinese officials involved in imposing the latest national security law in Hong Kong, as well as the financial institutions that knowingly conduct "significant transactions" with the officials. The bill is now awaiting the President’s signature before being passed as law.

The materials, energy and industrials sectors were the biggest gainers among S&P500 sectors, while only the real estate and communication services sectors inched lower on Thursday. In company news, Tesla's better-than-expected deliveries (90,650 vehicles delivered versus analysts’ estimates of 83,071) kept its shares surging for the fourth trading day in a row, rising 7.95% to US$1,208.66 per share. The electric car maker's value surpassed Toyota on Wednesday and is currently the world's largest automaker in terms of market value, despite not yet achieving a full fiscal year of net profits. Tesla's better-than-expected vehicle deliveries implies the growing amount of market share that the company has been able to gain in China, the world's largest electric car market, allowing the company to continue to achieve a high growth rate despite pressure from the Covid-19 pandemic and the seven-week halt at its California car plant. The next focus for the company will then be its quarterly results, in which profitability will be a key milestone. Higher-than-normal operating costs in relation to the Covid-19 pandemic may however weigh on the likelihood of the company earning profits for the quarter, despite high vehicle deliveries.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.36% +92.39 25,827.36
S&P500 +0.45% +14.15 3,130.01
Nasdaq +0.52% +53.00 10,207.63
*Source: Bloomberg

The dollar was mixed on Thursday, as investors weigh on the growing downside risks despite better-than-expected economic data. Some of the dollar's gains can likely be attributed to some of the conflicting economic data in the US. While NonFarm payrolls rose past expectations, continuing claims in the US inched higher to 19.29 million for the week ended June 19th from a revised figure of 19.23 million the previous week, signalling that the spike in Covid-19 cases in several states in the US may be weighing on business sentiment and consequently putting a pause on hiring.

The kiwi rose the most among G10 currencies, likely as the country's success in curbing the Covid-19 domestically helped its economic outlook in addition to growing risk appetite thanks to better-than-expected economic data. Other commodity-related currencies were the top performers against the greenback in the G10 basket of currencies as well.

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Safe haven assets were mostly higher on Thursday, possibly as some investors shifted into lower-risk positions ahead of the long weekend. Gold inched higher on Thursday, recovering some of its losses on Wednesday. The Japanese yen fell against the dollar but rose against the euro, suggesting that risk aversion is still present despite the optimism in the equities market. US Treasuries were mixed but close to flat. Benchmark 10-year yields inched slightly lower by 0.7bps to 0.67%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.30% +5.29 1,775.38
Silver -0.31% -0.06 17.96
USD/JPY +0.03% +0.03 107.50
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.8bps 0.15%
10-Year -0.7bps 0.67%
30-Year +0.4bps 1.43%
*Source: Bloomberg

Oil futures advanced on revived expectations for a faster-than-expected economic recovery following the BLS' jobs report. India's recovery in fuel sales likely helped fuel optimism for crude oil demand as well, as the Indian economy starts to ease lockdown restrictions. Provisional fuel sales in India in June had climbed within 88% of 2019, after dipping to less than 50% of in April, according to a report by India's oil ministry. However, details of the report revealed that a surge in sales of cooking gas was the driver for overall gas sales, instead of diesel and petrol, suggesting that the economy is still facing pressure from the pandemic. The recovery in demand for fuels in India may as a result not be sustainable, since the country still faces difficulty in curbing the spread of the novel coronavirus domestically. More likely is for the recovery in demand for diesel and petrol to remain at a gradual pace as the economy shifts between easing lockdown restrictions and implementing new measures to deal with the spread of the Covid-19 pandemic. Still, the recovery in India's overall energy demand is a good sign for crude oil demand, indicating that the bottom for crude oil prices has likely passed with an increasing number of economic coming back online after lockdowns.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +2.64% +1.11 43.14
WTI +2.08% +0.83 40.65
*Source: Bloomberg

In Asia, trading may be relatively muted today ahead of the Independence Day holiday in the US. The Nikkei, KOSPI and ASX200 were trading slightly higher on Friday morning, and is likely to be able to track gains in the US as investors' will probably be increasingly bullish on an economic recovery following the BLS' jobs report. Futures tracking major in the US were trading slightly lower but close to flat as of 8.54am (GMT +8) and is likely to continue to trade close to current levels ahead of the long weekend in the US.

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei +0.57% +126.40 22,272.36 8:44:25 AM
KOSPI +0.33% +7.05 2,142.42 9:04:20 AM
ASX200 +0.86% +52.59 6,085.30 9:04:14 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.05% -12.00 25,747.00 8:54:23 AM
US Futures -0.06% -2.00 3,127.00 8:54:27 AM
Nasdaq Futures -0.01% -1.25 10,354.50 8:54:23 AM
*Source: Bloomberg

Economic releases for the day ahead include (all timings in GMT +8):

  • Germany June Services/Composite PMI (Markit) (F) (3.55pm)
  • Eurozone June Services/Composite PMI (Markit) (F) (4pm)