Why a Weak NFP Would be the Most Bullish Thing Ever

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Equities mildly bid
Dollar mixed
Nikkei -0.22% Dax -0.01%
UST 10Y 0.93
Oil $46
Gold $1838/oz.
BTCUSD $18962/oz.

Asia and the EU
UK PMI Construction 54.7

USD NFPs 8:30
CAD Employment

Ahead of jobs day in the US markets were calm with a slight risk on mood in equities while the dollar was mixed as it was flat against the yen and Swissie but continued to fall against the euro and cable.

There was little action in Asia and Europe with no fresh newsflow and traders were content to let the markets trade in narrow ranges as all eyes were on the US labor numbers with many participants wondering if the resurgence of COVID has started to curb demand employment once again.

The forecast for the economy to generate 469K jobs versus 639K the period prior but given the downward print in the APD data the market may be bracing for a smaller gain. Certainly there is plenty of evidence that COVID has been destructive in the month of November as cases have hit record highs breaking the 200,000 barrier just a few days ago. Still, it’s unclear just how much of an economic impact the resurgence of the virus has had as much of economic demand is not shifting to digital transactions with Amazon hiring up to 1400 people per day to meet the demand for the holiday season.

Adding to the bullish case was yesterday’s ISM Services employment index which printed above the 50 boom/bust line at 51.5 indicating that growth was speeding up. Generally , the ISM data is considered to be the best leading indicator of NFPs so there is a good chance that the NFP data could come in line at the very least.

Still, a big downward shock could have counterintuitive consequences for the market. Although it would seem to be bearish for risk, the opposite may in fact be true. A weak NFP print would inject a note of urgency into the lame duck session of Congress and could motivate policymakers to pass an intermediate fiscal stimulus bill. Since capital markets have been trading on nothing more than government intervention on both monetary and fiscal side ever since the March panic lows any prospect of additional immediate stimulus would be viewed as bullish by the market and indices would likely sprint to fresh record highs into the close of th week.

Boris Schlossberg
Managing Director

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