Friday, June 5, 2020

Will NFP Report Help US Stocks Continue Their Rally?

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News shaping
the markets today

     

What’s happening: The US Labor Department is scheduled to report its NFP (non-farm payrolls) data for May at 8:30am ET (12:30pm GMT) today.

Why it matters: NFP, which is released on the first Friday of every month, is the most anticipated economic report, as it provides in-depth data on various aspects of employment trends in the economy.

With important metrics like job additions or losses, average working hours and hourly earnings, the NFP provides a peek into the overall health of the economy, as consumer spending is directly dependant on the state of the labour market.

NFP is the most market-moving report, impacting not only stock and forex trading, but also the commodity market index.

Investor optimism around the reopening of the economy has led to a strong rally in the equity market this week. The market may become highly volatile ahead of the NFP report, providing opportunities for stock and forex trading.

What’s different this time: Most businesses are severely hit by the coronavirus outbreak. The US Federal Reserve has been monitoring the economy, extending support to the markets in various ways. Despite the many stimulus measures, the NFP report is likely to show massive jobs losses in the US.

Despite this, the numbers are expected to be lower and less shocking than those included in the previous month’s report, with businesses beginning to reopen and employees joining back. The jobs report will also determine whether the Fed considers additional stimulus for supporting the economy.

Expectations: Here’s where the expectations stand ahead of this month’s jobs report:

  • The headline NFP figure is expected to show a record loss of 8.0 million jobs in May, versus 20.5 million job losses in April.
  • The unemployment rate is expected to surge to 19.5% in May, from April’s 14.7%.

There are some leading indicators that can help forecast the NFP report. These include the ADP jobs report, ISM manufacturing, non-manufacturing PMIs and initial jobless claims. Although all these indicators signal additional job losses for May, but they are an improvement over previous month.

What to watch: Traders are gearing up for volatility immediately before and after the release of the jobs report in the equity and currency markets. In case the jobs report is much better than expected, it will raise hopes of a faster economy recovery. A strong jobs report could boost equities, adding to this week’s stock market rally.

The Markets Today

     

The Australian dollar will be in focus today, after the currency hit new multi-month highs in the previous session.

Context: The Aussie closed higher on Thursday, extending its weekly rally despite a decline in the equity market. The market continued to see the Australian dollar appreciate on Friday, resulting in the currency gaining around 4.8% for the week.

Details: Investor sentiment in the US was dampened by the release of initial jobless claims data yesterday. Although the number of people filing for jobless benefits eased to 1.877 million in the latest week, the figure was higher than expectation of 1.8 million.

In local data release, the Australian Industry Group’s Performance of Services Index jumped to 31.6 in May, from 27.1 in the prior month, recovering from its strongest downturn in history.

The Australian dollar reached intraday high level of 0.6989 versus the greenback, before falling slightly towards the end of the session on Thursday. The AUD/USD pair traded higher by 0.65% to 0.69875 during the European session today.

What to watch: Markets could remain focused on global risk trends, with the US NFP report providing the best signals for foreign exchange trading. Investor sentiment may also be hurt by any news of a second wave of covid-19 infections or disruptions to the eagerly-anticipated economic rebound.

Other Markets: European indices were trading higher at 9am GMT, with the FTSE 100, German 30 and French 40 up by 0.7%, 1.2% and 1.2%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Mexico’s gross fixed investment, car production and auto exports, India’s deposit growth, foreign exchange reserves and bank loan growth, Canada’s employment change, unemployment rate and Ivey PMI, Brazil’s car production and new vehicle registrations, Russia’s inflation rate and foreign exchange reserves, Turkey’s treasury cash balance as well as the US consumer credit and Baker Hughes rig count figures.