A Double Whammy of Trouble for Stocks?

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Risk flows mildly negative
All eyes on NFP
Nikkei -0.39% Dax -0.24%
UST 10Y 0.52
Oil $41
Gold $2057/oz
BTCUSD $11786

Asia and the EU
No Data

North America Open
USD NFP 8:30
USD Employment 8:30

Equity markets were slightly lower with the dollar up across the board ahead of the key US NFP report today as traders awaited evidence of US economic stabilization in a COVID stricken world.

Stock index futures were off by about 50 basis points in quiet listless trading with investors wary that the employment data may show a smaller than expected rebound in jobs as the pace of US recovery from the coronavirus lockdown may have slowed.

The consensus view is that the US economy has generated 1.6M jobs versus 4.8M the month prior, but methodology and classification due to government PPP program could cloud the data.
Preliminary readings are mixed with ISM Non-Manufacturing employment component – usually the most reliable predictor of NFPs – dropping to 42.1 from 43.1 indicating that many of the customer-facing businesses may have curtailed their hiring as infections spread to the Southwest US.

Equities could face a double whammy of bad news if the NFP misses its mark and the stimulus plans in Washington fail to produce any deal. Lawmakers are under a self-imposed deadline to get an agreement by end of this week, but so far two sides remain far apart with Democrats looking to provide 3 Trillion of spending while Republicans want to cap the size of the bill to 1 Trillion.

It remains inconceivable that lawmakers will not compromise on something and leave millions of Americans without financial aid, but if the markets begin to sense that this is a possibility the risk of downside moves could accelerate quickly as the day proceeds.

Boris Schlossberg
Managing Director

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