Friday, May 8, 2020

Will Investors Shrug Off a Shocking NFP Report?

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What’s happening: The US Bureau of Labor Statistics is set to release its all-important NFP (non-farm payrolls) report for April at 8:30am ET (12:30pm GMT) today.

Why it matters: NFP, which is the official employment report, is the most eagerly awaited economic report, as it reflects the overall health of the economy. The payrolls report is a measure of how many new jobs were added or lost in the previous month in the economy. Along with the NFP numbers, important data on the unemployment rate is also released.

The NFP report provides an indication of the fundamental conditions of the economy. A rise in employment numbers lifts the spending ability of consumers, which further fuels economic growth.

This report is a major market-moving event, which not only impacts the domestic equity market, but also helps in providing direction to the global equity, forex and commodity markets. The report is also considered by the Federal Reserve in deciding interest rates, but with the coronavirus crisis and rates already near zero, the Fed’s response could be different this time.

What’s different this time: Coronavirus-induced lockdowns have hurt businesses everywhere. The US benchmark interest rates are close to zero and various stimulus measures have already been announced by the Fed to lift the economy. Despite these initiatives, the NFP report is likely to show massive job losses, and investors fear that the US government may be out of moves now.

US President Donald Trump seems adamant to reopen the economy and get Americans back to work as soon as possible, in a bid to get the economy back on track with elections approaching. Several states have already announced the easing of lockdown restrictions. There are widespread concerns, however, around whether this early easing will result in a second wave of infections in the country.

Expectations: Here’s where the estimates stand ahead of the data release:

  • The headline NFP figure is expected to show a record loss of 22 million jobs in April, following 701,000 job losses in March.
  • The unemployment rate is projected to spike to 16% in April, from March’s reading of 4.4%.

Historically, certain leading indicators have helped forecast the NFP report. These include the ADP employment report, initial unemployment claims and the employment components of the ISM manufacturing and non-manufacturing PMIs. All these indicators have delivered unprecedented collapses this time, pointing towards a very disappointing NFP report for April.

What to watch: Both equity and currency markets are expected to make big moves following the release of the NFP report. March’s jobs data had come in worse than market expectations. Whatever the case may be for April, markets could be highly volatile as the report is released. At the same time, volatility may be constrained by markets getting accustomed to disappointing news. An example of this is US stocks posting gains yesterday, despite a surge in initial jobless claims by more than 3 million last week.

The Markets Today

     

US stocks will be in focus today, ahead of economic data scheduled for release later in the day.

Context: US stocks closed higher on Thursday, backed by a strong rally in energy and financial shares. Investors also assessed the weekly jobless claims data, which showed over 3 million people filing for jobless benefits.

Details: The US Labor Department reported that initial jobless claims increased by 3.2 million in the latest week, taking the total job losses to more than 33 million amid the coronavirus pandemic. Investors appeared to be slightly relieved, however, as the figure showed a slowdown in job losses.

Data from China also showed a surprise rise in exports in April. China’s exports surged 3.5% last month, versus the consensus estimates of a 15.7% decline.

After rising as high as 24,094.62 earlier in the session, the Dow ended the day higher by 0.9% at 23,875.89. The S&P 500 gained 1.2% to close trading at 2,881.19, supported by a 2.5% rise in energy stocks and a 2.2% gain in financial equities. The Nasdaq 100 erased its losses for the year, gaining 1.4% to close the day at 8,979.66.

Shares of Grubhub dipped more than 12%, after the company missed earnings estimates. Bristol-Myers Squibb reported upbeat quarterly earnings.

In commodities news, WTI (West Texas Intermediate) crude oil for June delivery fell 1.8% to settle at $23.55 per barrel, after rising as high as $26.74 earlier in the session. Gold for June delivery rose 2.2% to settle at $1,725.80 an ounce.

What to watch: Investors continue to monitor the daily coronavirus numbers, with the total number of cases exceeding 3,847,100 globally. The number of positive COVID-19 cases in the US has surpassed 1,256,970 with around 75,670 deaths.

US stocks are expected to continue the positive momentum, with stock futures pointing towards a higher start on Wall Street. Markets await a basket of economic reports from the US, including nonfarm payrolls, unemployment rate and wholesale inventories. US wholesale inventories are expected to decline 1% in March.

Other Markets: European indices were trading higher at 9:00 am GMT, with the STOXX Europe 600, German 30 and French 40 up by 0.6%, 1% and 0.5%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

Mexico’s car production, auto exports and gross fixed investment, Turkey’s treasury cash balance, India’s deposit growth, foreign exchange reserves and bank loan growth, Canada’s jobs report, housing starts and value of building permits, Brazil’s inflation rate, car production and new vehicle registrations as well as the US Baker Hughes crude oil rigs.