The Important NFP of the Year

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Stocks bounce back in Europe
FX steady
Nikkei -.1.1% Dax 0.19%
UST 10Y 0.66
Oil $41
Gold $1938/oz
BTCUSD $10415

Asia and the EU
AU Retail Sales 3.2% vs. 3.3%
EUR GE Factory Orders 2.8% vs. 5.1%

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

After falling further in Asia stock index futures stabilized in early European trade and rose by 50 basis points ahead of the important US Non-Farm payroll later today.

Yesterday’s massive selloff was the first corrective move in the markets in weeks and although some traders were at a loss for the reason behind such volatility it was clear that the market had reached a breaking point as the disconnect between the lackluster economic data and the near-vertical rise in asset prices finally became obvious.

All throughout this week, the eco data has been disappointing or just in line with expectations pouring cold water on the idea the post COVID recovery was broadening out. Yesterday’s weekly jobless claims though seemingly better than the forecast achieved that result only through a new change in seasonal adjustments. On a raw data basis, there were 2M more workers collecting unemployment than the month prior suggesting that whatever rebound in labor demand we’ve seen in July has already started to stall in August.

This dynamic suggests that fewer businesses are reopening than expected and more importantly those that are reopening are doing so at reduced capacity with smaller labor forces than before the pandemic.

The theme this week, therefore, has been that while aggregate demand has certainly made strong V-shaped recovery jobs have not, and without further stimulus or job growth the demand recovery is likely to stall dampening growth expectations into the end of the year.

That’s why today’s NFP report could prove crucial to equity prices going forward. Market forecasts are for a gain of 1.3M jobs and a reduction in the unemployment rate to 9.8%. Our colleague Kathy Lien noted that only one pre-NFP indicator is pointing to a lower print while all the other measures such as ISM Non-Manufacturing employment have improved. Still those improvements are relative, not absolute with the ISM data still below the 50 boom/bust level.

In short, the NFP report is shaping up as one of the more important economic releases in recent months. With equities priced for perfection, the jobs data needs to deliver otherwise yesterday’s selloff could turn into a much more viscous decline than most traders expect.

Boris Schlossberg
Managing Director

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