Market Overview

2 July 2020

A "Cat on the Tree" Mood Before the U.S. Jobs Report

The stocks of most New York and global issuers rose in value again, like a cat just trying to climb a higher twig of the same tree at the sight of danger somewhere below. Wall Street gains as risks of major reserve currencies' depreciation and fresh positive macroeconomic data is overshadowing worries of renewed lockdowns steps that may follow a record surge in more than 51,000 daily, nationwide coronavirus cases in the United States which were officially detected on July 1.

Fresh updates on the progress in COVID-19 vaccine programs may also be responsible for Wall Street's recent mini-rally as a vaccine developed by Pfizer Inc and German BioNTech showed promising results as it was found to be well tolerated in early-stage human trials. Equity investors ignored the news from Hong Kong where police arrested more than 300 people protesting against the new national security law introduced by Chinese authorities. The U.S. House of Representatives passed legislation on Wednesday that would penalise banks doing business with Chinese officials who implement this law.

The U.S. S&P500 stock index visited levels above 3120 yesterday in American trading as Asian and European markets tracked it on Thursday morning. Even shares of Facebook social network that were recently severely damaged by the advertising companies' boycott almost completely recovered yesterday. The high-tech Nasdaq composite index marked a new all-time peak above 10,300, driven by historical highs of Amazon at almost $2,900 per share, Netflix at about $488 per share and on Tesla at $1,135 per share. Regarding Tesla, markets are inspired by Elon Musk’s latest achievements in space and faster growth of production and orders for electric cars. "Stay at home" assets of Internet delivery and streaming TV are ahead of the rally as they are benefiting from social distancing.

The Institute for Supply Management (ISM) reported that its index of the U.S. national manufacturing activity jumped to a remarkable reading of 52.6 last month from 43.1 in May. This data ends three straight months of contraction as new factory orders rose to 56.4 in June after 31.8 a month before, manufacturing employment recorded a value of 42.1 after 32.1 and manufacturing prices 51.3 after 40.8. The ISM reports are based on data compiled from replies to questions asked of purchasing and supply executives in over 400 industrial companies.

The ISM New York business conditions data and official factory orders measures, including a revision of the durable goods orders data, released a week earlier are expected today. And, of course, all eyes will be on the U.S. Labour Department's nonfarm payrolls report that is due to be published on Thursday instead of the usual first Friday of each month because of the U.S. Independence Day celebrations. The average expectations of experts surveyed by Bloomberg are that more than three million new jobs were created in June, of which more than 2.9 million were supposed to be created in the private sector. New data may support the recovery in the U.S. labour market as it already added 2.5 million jobs in May, and the official U3 unemployment rate may fall to 12.3% after 13.3% a month earlier and after apocalyptic forecasts of a nearly 20% unemployment rate at the bottom of the coronacrisis. However, unemployment calculations are under a lot of criticism and even confusing comments from the statistics department itself.

Markets are more complacent than nervous about this series of labour data. Although it is possible that some traders would be engaged in short-term repositioning in various assets, where they may seek to change their early and rather expensive purchases for cheaper ones. If any data released today could be interpreted as generally good or normal, then serious changes of the market mood are unlikely, even before the long American weekend. "A better-than-expected outcome could go some way to settling the near-term debate that the U.S. labour market will heal relatively quickly and justify new highs in U.S. equities," said Stephen Innes, strategist at AxiCorp.

If everything goes smoothly and it resembles a walk in the park after the U.S. job report today, then the Chinese Caixin services and composite Purchasing Managers Indexes (PMI) in early Friday's Asia hours and the similar series of European data from all the EU countries later tomorrow will become the next critical points before the end of the week. These sets of data may well become a starter for some medium-term investment processes. At the same time, the U.S. Dollar may continue to stay on the defensive side against more growth-sensitive currencies, amidst rather upbeat American and European economic releases. Further safe-haven purchases of the Greenback may have insufficient ground in this regard. Anyway, it will be more appropriate to make further forecasts or trade plans after markets finish digesting all these reports this week.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

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