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Optimism Reaches Its Peak Level Ahead Of US NFP

Optimism Reaches Its Peak Level Ahead Of US NFP

European and US stock futures are trading higher on the final trading day of the week, and the US equity market is on track to record its best weekly in nearly three months. Volume in the market is likely to remain soft ahead of the US labour market report—the most important economic event of the day. There is no doubt that there has been tremendous improvement in the employment picture since its peak back in summer last year. The stage is set for rock-solid US NFP data, and this has also enhanced the chances of greater disappointment if reality doesn’t meet expectations.  

The Dow Jones Industrial Average added 332 points. The S&P 500 gained 1.09%, supported by energy and financials. The Nasdaq Composite surged 1.23%. So far this week, the blue-chip Dow has increased more than 4%, while the S&P 500 and the Nasdaq have gained 3.9% and 4.9%, respectively.

US NFP

The mother of all economic readings, US NFP, will be released today, and it is the most important economic event of the day. The Non-Farm Employment Change forecast is 77K, while the unemployment rate is expected to remain at 6.7%. 

All signs are pointing towards a strong reading for the US NFP data, which is due later today. That is because, this week we had a pretty robust reading for the US ADP employment. This number usually sets the tone for the US NFP data. The fact is that optimism about good US NFP number comes from the US ADP and the decent reading of ISM manufacturing and non-manufacturing data. 

In addition to this, the Weekly New Jobless Claims number printed the lowest reading since late November last year. Yesterday, the number came in at 779K, which was 33K below the previous week, and also better than the forecast of 830K. Continuing Jobless Claims also drifted lower during this week, and the fewest Continuing Jobless Claims were filed since March last year. 

The only economic data that doesn’t stack up for a solid US NFP number today is the University of Michigan Index, which fell to 79 from 80.7. 

Be Wary Of The Worst Situation 

Traders always face the biggest disappointment when they are least expecting it. Therefore, today could be one of those days. As you can see from above, we have higher odds stacked up favouring a strong US NFP reading. However, for whatever reason, if the actual number comes in much weaker than the market’s expectation, it may lead to a blood bath. Under those circumstances, equity markets are likely to melt, and safe-haven assets such as gold are going to see a sharp spike. 

Vaccine Progress 

Moving away from the US NFP, the coronavirus vaccine’s positive sentiment is strengthening up further among investors and traders. The vaccine rollout phase is clearing more hurdles every day, and this means we are becoming closer to a day when we will start hearing the good news of national lockdowns coming to an end. 

Another important factor to keep in mind is that consumers are completely frustrated with current lockdown restrictions, and they have been living with this now for nearly a year. The moment governments will start relaxing the restrictions; the chances are that we are going to see a massive surge in economic activity as the public will appreciate the freedom of traveling and revisiting shopping centers and restaurants.