The start of a new month means only one thing – it’s time for the latest nonfarm jobs report from the States!
US: Trick to trade nonfarm Friday incoming
There is increasingly going to be more and more pressure put on upcoming nonfarm jobs reports, thanks to what the Fed said last Wednesday.
Jerome Powell and co. were keen to stress that ‘substantial further progress’ needs to be made regarding full employment and the 2% inflation target before the stimulus taps are turned off.
However, on the topic of tapering, Powell stated that he wanted to see a ‘string’ of strong jobs reports before having those discussions.
When asked to clarify, the Fed chair defined a ‘string’ as simply more than one, meaning there is a chance that tapering talk could arise at the next meeting in June, dependent on the next couple of nonfarm payrolls.
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And already the jobs report is coming off a hot month. April’s headline figure surged past expectations, coming in at 916,000 against the 652,000 forecast and the 468,000 posted the month prior. The unemployment rate, meanwhile, shot down to 7.5% from 8.2%. As ever the one disappointing figure was wage growth, which contracted by 0.1%.
This time out analysts are looking for another 900k-plus reading, around the 925,000 mark. If so, that would be the strongest monthly figure since the numbers reported at the start of September 2020.
That kind of number would also potentially pose a conundrum for investors. While signs of an American economic recovery are to be celebrated, anything that nudges the Federal Reserve towards reconsidering their current policies is hugely worrisome for the markets. Which makes Friday’s nonfarm jobs report a tricky one to trade.
Since first touching 34,000, the Dow Jones has struggled to make any sustained charges beyond that level. How investors choose to react to Friday’s jobs report, especially in the case of a strong headline reading, may set the tone for the rest of the month, and whether the Dow will find itself struggling to defend 34,000 or on its way to 35,000.
Before Friday’s main event, the US is faced with the latest factory orders data on Friday, the final services PMI and ADP nonfarm employment change reading on Wednesday, and the usual Thursday jobless claims figure, which has been hovering between 545k and 575k for the last 3-weeks.
US: Stocks to Watch
The main portion of earnings season also starts to wrap up this week. Pfizer, General Electric and American Express report on Tuesday, while PayPal, General Motors and Uber update on Wednesday.
As was the case with the Fed last week, investors will be looking out for any tapering talk from the Bank of England on Thursday, especially since this month also brings the latest quarterly Monetary Policy Report.
The outcome of the Scottish Parliament Election could also have a role to play in how the pound performs in the latter half of the week, specifically if the results indicate a raised likelihood of another referendum on independence.
As for data, the final manufacturing PMI is joined by the mortgage approvals and net lending to individuals figures on Tuesday, with the final services PMI on Thursday, and the construction PMI on Friday.
Following news of a double-dip recession in the Eurozone in Q1, investors will be desperate for any signs of a recovery.
The services PMIs are accompanied by the latest EU economic forecasts on Wednesday, followed by Germany factory orders and region-wide retail sales on Thursday, and German industrial production and Italian retail sales on Friday.
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