Global markets were steady Monday as New York City is poised to reopen and the good vibes from a distorted May jobs report linger.
It helped that the dollar was down – again. The Bloomberg dollar index was off an eighth straight day, the longest losing streak in around nine years. Brent rose following the extension of the OPEC+ cuts and long-end US yields were cheaper in a continuation of last week’s bond selloff. “Objects in motion…” and such.
As “the city that never sleeps” wakes up, note that we’ve now seen the first day without a death from COVID-19 since March. It’s a major milestone in the pandemic.
“The headline [US jobs print matters] because it represents a welcome turn: The chart doesn’t look very ‘v-shaped’ yet but the equity market can’t contain its optimism”, SocGen’s Kit Juckes wrote Monday.
He was referring to the following visual which simply shows that, for all the celebrating in the Rose Garden, we’re quite a ways from “great” (“again” or otherwise).
“Things are now complicated by the ‘reality’ no longer being the reality, as the US version of Goskomstat provides jobs data they admit are wrong, counting millions on unemployed as employed, and let’s not even start on how the business births/deaths model ‘works’ when everything is shut down'”, Rabobank’s Michael Every wrote, in his daily.
Seemingly, everyone feels as though the obligatory polite interlude (to account for the “any good news is welcome at a time like this” situation which prevailed stateside last week) is now over, so picking apart US payrolls is fair game.
“The economists’ forecasts were wrong: does that surprise anybody? And the markets were wrong too”, Every goes on to write, adding that market participants “seem to the think Trump was right when, with no sense of irony, he almost sang “Keep on Rocking’ in the Free World” about the data”.
There’s some worry that the better-than-expected jobs report may compel the Fed to adopt a less accommodative tone this week. “This may encourage the Fed to be less supportive of markets”, Mohamed El-Erian mused, on Bloomberg TV, after suggesting the data may be an aberration.
I wouldn’t be too concerned about that. It’s highly unlikely that Jerome Powell would take one (semi-disputed) jobs report and use it as an excuse to adopt a less conciliatory tone Wednesday. That would be uncouth.
“Wednesday’s FOMC will be interesting, but while talk of negative rates can be kicked into the long grass, there won’t be talk of policy normalization for months and months”, SocGen’s Juckes remarked. “That allows the US yield curve to go on steepening, supports risk sentiment and limits any benefit the dollar can derive from the strong data”.
While the jobs report won’t impact near-term Fed policy, it may reduce the odds of Republicans backing more aggressive government spending, even as everyone realizes some additional relief is necessary and politically expedient in an election year.
“Every 1% the S&P 500 rallies reduces the chances that a stimulus bill actually gets passed”, Tom Essaye, author of the “Sevens Report” said late last week. As Bloomberg’s Sarah Ponczek writes, “that’s all the more significant considering that the current unemployment benefit boost created by the CARES Act is due to expire at the end of July”.
That latter point is, indeed, significant. The extra federal boost to unemployment benefits is what allowed the “simulation” to feel more “real”. The visual (below) is a breakdown of Goldman’s projections for worker, corporate and disposal income with fiscal support incorporated (more here).
Keep that in mind as you celebrate every tick that brings the S&P closer to new record highs.
In any case, “dollar down big, bonds down big and equities up big” is the story. At least for this moment. Which, like any other, could prove fleeting.
“Bad news is good news for stocks and good news is also good news, apparently”, Rabobank’s Every quips.