- US nonfarm payrolls today will be a horror show, but will markets care?
- Stocks set for more gains on trade news and bets Fed will cut to negative
- Dollar and yen retreat amid risk-on mood, but losses limited
- Commodity currencies climb, loonie eyes its own jobs report
Worst nonfarm payrolls ever, by far
The disconnect between sanguine financial markets and an imploding real economy grows larger by the day, as bets for more and more stimulus are leading Wall Street to turn a blind eye to how catastrophic economic data really are. This reckless phenomenon is on full display today as newfound bets that the Fed will cut interest rates to negative territory are helping to push Wall Street futures higher, ahead of what will surely be the worst US jobs report of all time.
Nonfarm payrolls (NFP) are expected to clock in at -22 million today, which would drive the unemployment rate up to a breath-taking 16%, the highest since World War Two and far surpassing the 10% peak of the last recession. What’s truly terrifying though is that this jobs survey was conducted in the second week of April, and since the number of people applying for unemployment benefits has remained alarmingly high since then, the real unemployment rate is probably even higher today.
Do data matter anymore? Probably not, at least not for now. We’ve seen very little market movement even on scary data lately, so investors are unlikely to panic today either, especially since a hellish NFP number has been well telegraphed by the weekly jobless claims and ADP report. Of course, that is assuming there are no massive surprises in the upcoming numbers.
Stocks more likely to move than dollar
If there is any notable reaction though, it’s more likely to be in stocks, and it might be in the opposite direction of any NFP surprise. To explain, a stronger-than-expected NFP figure could calm some nerves about the economy and therefore dispel some speculation about the Fed cutting rates to negative, which may take some shine away from equities. However, a much worse number than consensus could make investors even more confident about negative rates, lifting stocks.
As for the dollar, it barely fell yesterday even as 2-year Treasury yields touched an all-time low on speculation for negative rates, so it might be less sensitive today too. Overall, it’s still difficult to envision any real weakness in the reserve currency. The Fed has already done almost everything in its power to weaken it, and yet the dollar remains stubbornly strong as there are so few viable alternatives. The euro for instance doesn’t look attractive at all, as the Eurozone is mired in institutional problems that will likely exacerbate this crisis and delay the recovery.
Nasdaq turns green for the year, aussie climbs
The Nasdaq Composite (+1.4%) erased all its losses for the year and futures suggest it will turn green when Wall Street opens today, as investors pile into mega-tech names that are seen as more defensive plays in this stay-at-home crisis.
Beyond traders assigning a one-in-three chance for the Federal funds rate to go negative before year-end, the mood is also being helped by news that US and Chinese negotiators held a constructive phone call overnight, calming fears around escalating trade tensions.
In planet FX, that is translating into a slightly softer yen as traders cut their safe-haven exposure, while commodity-linked currencies like the aussie and kiwi are edging higher.
That being said, it remains to be seen whether the positive tone can last. A lot might depend on the NFP data, but broadly speaking, a lot of optimism has now been baked back into the cake, so there’s a lot of room for disappointment if anything goes wrong.
Besides the US jobs data, Canada will see the release of its own employment numbers, while ECB President Lagarde will speak at 11:00 GMT.
