08 February 2021

US Stocks Spike Despite Soft Jobs Report

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News shaping
the markets today

     

What’s happening: US stocks settled higher on Friday, notching their strongest weekly gain since the November elections.

What happened: Major US indices posted strong gains, despite the latest non-farm payroll (NFP) report indicating lower-than-expected job additions in January.

Progress in the talks around the Biden administration’s proposed $1.9 trillion covid-19 relief plan also supported Wall Street stocks last week.

Why it matters: According to the US Labour Department’s all-important NFP report released on Friday, 49,000 jobs were added during January, versus the consensus estimate of 50,000 job additions. Sentiment was supported, however, by a decline in the unemployment rate to 6.3%, from 6.7% in the previous month. Moreover, the recent reading suggests a recovery in the labour market, which suffered a loss of around 10 million jobs during the early stages of the pandemic.

January’s data follows a disappointing reading from December, which included a loss of 140,000 jobs. In fact, the data in December was the first monthly decline in payroll figures in around eight months, with several states in the US reimposing restrictions to curtail the spread of infections, resulting in another round of layoffs, especially in the hospitality segment.

In other economic data, America’s trade deficit narrowed in December, but the deficit recorded for 2020 came at the highest in 12 years.

Market sentiment remained bullish, with renewed hopes of the Congress clearing President Joe Biden’s proposed $1.9 trillion package, with the Senate approving a budget resolution on Friday. The softer NFP report also increased prospects of another stimulus under the Biden administration.

Trading limits on the shares of GameStop, AMC Entertainment and other meme stocks were removed on Friday, following a sharp downturn last week.

Sentiment was also lifted by Johnson & Johnson announcing its application of emergency use authorisation for its covid-19 vaccine candidate, which would be the first single-shot vaccine to be approved.

Meanwhile, covid-19 hospitalisations in the US continued to decline, although the country recorded the highest single-day deaths to date, of more than 5,000 on Thursday.

The Dow Jones index climbed 92.38 points to settle at 31,148.24 on Friday, slightly shy of its record closing of 31,188.38 set on January 20. The S&P 500 added 0.4% to close at a new record high of 3,886.83, while the Nasdaq 100 also gained 0.3% to reach 13,603.96 on Friday. For the week, the Nasdaq surged 5.3%, S&P 500 rose 4.7%, and the Dow gained 3.9%.

What to watch: Markets will keep an eye on the developments around President Biden’s fiscal stimulus package, which is expected to provide further support to Wall Street stocks.

Rising covid-19 cases remain a major concern for the markets, with total infections surpassing 27 million in the US.

The Markets Today

     

The Canadian dollar will be in focus today, after the release of a disappointing jobs report for January.

Context: The loonie continued to inch higher versus the US dollar on Friday, despite Canada shedding massive jobs in January.

Details: Statistics Canada said on Friday that the economy had lost around 213,000 jobs last month, with the employment rate down to its lowest level since August 2020. The unemployment rate rose 0.6 percentage points to 9.4% in January. The data was significantly worse than the consensus estimates of 47,500 job losses and an unemployment rate of 8.9%.

The losses in nonfarm payrolls were concentrated in the Ontario and Quebec regions, and in the retail sector, with a surge in covid-19 infections resulting into the closure of several businesses.

January’s losses marked a decline in jobs for the second straight month, after 63,000 positions were lost in December.

While Canada’s employment data came in weaker than projected, the continued rise in crude oil prices provided support to commodity currencies like the loonie. Moreover, US Treasury yields declined from their latest highs, exerting pressure on the greenback.

In other economic reports, the Ivey PMI improved to 48.4 in January, from 46.7 in the previous month. However, the latest reading still pointed to contraction in the country’s economic activity. The country’s merchandise exports grew 1.5% to C$47.32 billion in December, while imports slipped 2.3% to C$48.98 billion.

The CAD/USD settled slightly higher at $1.2752 on Friday, with the forex pair adding 0.2% last week.

What to watch: In the absence of any major economic data from Canada until the end of this week, markets will monitor oil prices, hoping for rising crude prices to support the CAD/USD.

Other Markets: European trading indices closed mixed on Friday, with the FTSE 100 and German DAX 30 down by 0.22% and 0.03%, respectively. The French 40 bucked the trend and moved higher by 0.90%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s industrial production, Spain's industrial production, Russia’s total vehicle sales, Central Bank of Brazil’s focus market readout, Mexico's consumer confidence indicator, car output and auto exports, Russia’s foreign exchange reserves as well as the US consumer inflation.

 

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