Risk on Holds Ahead of NFPs

Posted on

EU Labor Data better
Risk on ahead of NFP
Nikkei 0.11%% Dax 1.94%
UST 10Y 0.67
Oil $39/bbl
Gold $1772/oz
BTCUSD $9221

Asia and the EU
EU Unemployment 7.4% vs. 7.7%

North America Open
USD NFP 8:30

The dollar was weaker and equities were higher as risk-on flows held ahead of the important US Non-Farm Payrolls report due today at 12:30 GMT.

Investors were generally in a positive mood anticipating a big increase in job gains of 3M jobs versus 2.5M the month prior. There is massive uncertainty about the number given the classification problems last month. BLS admitted that many employers may have improperly filled out the report confused about the status of their workers given the PPP guidelines.

There is a good reason however to think that many employees returned to work in June as the ADP data yesterday which counts actual paychecks processed and bases its model on its own internal numbers suggested that 2.3M jobs were added last month. Despite the massive absolute gain, that number is still well short of the forecast and a big miss could dent risk going into the long holiday weekend especially given the backdrop of record high cases of COVID in the US.

As our colleague Kathy Lien pointed out yesterday, “the gains could fade quickly as they realize that these numbers could deteriorate quickly if states reverse reopening policies. The food service industry in places like Florida, California, and Texas will take a big hit by the closure of bars and nightclubs. According to California Governor Newsom, new restrictions will be announced before July 4th as the state reports a record 9,740 new COVID-19 cases that are expected to include a 3-week closure for restaurants.”

Yet even with the clear risks of re-closings the markets seem utterly unconcerned with the state of economic affairs in the US as the broad trend in equities remains up. That dynamic could hold true again if the buyers buy the dip on any bad news from BLS. as any true reckoning may not occur until the end of the month when the US unemployment benefits run out and the economy begins to take a massive hit to aggregate demand.

Boris Schlossberg
Managing Director

Leave a Reply

Your email address will not be published. Required fields are marked *