The main event of yesterday in the financial markets was the announcement of the results of the meeting of the Bank of England. Monetary policy parameters remained unchanged, but Central Bank warned it may to increase the size of the quantitative easing program as early as next month. The pound’s attempt to grow on this news ended quickly enough, as the Bank of England predicts the worst economic downturn in the UK since 1706. The central bank said it expects gross domestic product to decline by 14% during 2020 as a whole and by 25% in the second quarter. So today we recommend to sell the pound.
Jobless claims in the USA continue to come out with millionth values (again more than 3 million), which cannot but scare the markets ahead of official statistics on the US labor market. This data is always of great interest to financial markets in view of their exceptional importance and ability to show not only what happened to the economy a month ago and is happening now, but also what will happen to it in the foreseeable future. The labor market is a leading indicator of the economy. Its sharp deterioration today is a signal that tomorrow there will be weak data on industrial production, retail sales and, in a couple of months, on GDP.
Friday's NFP data are predicted to be the worst in the history of observations. On average, experts expect a decrease in the number of newly created jobs by 22 million. To understand the scale of what is happening, we note that 20 million is approximately the number of jobs that have been created in the US labor market over the past 10 years (!).
Why is the -22 million figure really real? We suggest looking at the figures for jobless claims. Recall that the basis for calculating the NFP for the month of April is the data for the end of March until the 20th of April. That is, purely arithmetic, we have 3.3 + 6.8 + 6.6 + 5.2 = +21.9 million unemployed. Thus, the figure of 22 million is quite real.
Our calculations are also confirmed by the employment data from ADP, published on Wednesday. They even slightly exceeded the -20 million mark.
A logical question arises how to make money on this unique situation that the US have never encountered in their entire history. Since this is about the state of the US economy, the stock market as well as the US dollar are obvious candidates for trade.
The following plan is proposed. Sell in the US stock market, which in the last month completely ignores the fact of the economic crisis, despite extremely weak statistics and even more failed quarterly corporate reporting. But this cannot last forever. Sooner or later, bulls in the stock market will have to admit the fact that economic reality has changed dramatically and has changed for the worse, and the stock market has not yet taken this into account in prices. So Friday’s data is ideal for the role of a cold sobering shower. That is why we recommend selling the US stock indices today.
In general, if you listen to any competent expert, then this development of events seems to be the only reasonable option. For example, the head of BlackRock ($ 8 trillion under management) Larry Fink said that the United States should prepare for massive bankruptcies among small and medium-sized businesses, empty planes and cautious consumers, as well as raising the corporate income tax.
As for the US dollar, three months ago, on such data expectations, we would recommend selling it literally for the entire margin. But now the situation in the financial markets has changed. In the last couple of months, at times when the markets are scared, the demand for the dollar has increased dramatically. That is why, no matter how strange it sounds, we recommend buying a dollar against the backdrop of disastrous data on the US labor market. Motivation: weak data is a reminder to markets that have recently relaxed greatly, how deep the economic abyss is. A natural reaction to this will be an increase in fear, which in turn will provoke an increase in demand for dollars. Note that the markets are not only interested in the dollar itself, but rather in the absence of risky US Treasury bonds, for the purchase of which dollars are needed.
Jobless claims in the USA continue to come out with millionth values (again more than 3 million), which cannot but scare the markets ahead of official statistics on the US labor market. This data is always of great interest to financial markets in view of their exceptional importance and ability to show not only what happened to the economy a month ago and is happening now, but also what will happen to it in the foreseeable future. The labor market is a leading indicator of the economy. Its sharp deterioration today is a signal that tomorrow there will be weak data on industrial production, retail sales and, in a couple of months, on GDP.
Friday's NFP data are predicted to be the worst in the history of observations. On average, experts expect a decrease in the number of newly created jobs by 22 million. To understand the scale of what is happening, we note that 20 million is approximately the number of jobs that have been created in the US labor market over the past 10 years (!).
Why is the -22 million figure really real? We suggest looking at the figures for jobless claims. Recall that the basis for calculating the NFP for the month of April is the data for the end of March until the 20th of April. That is, purely arithmetic, we have 3.3 + 6.8 + 6.6 + 5.2 = +21.9 million unemployed. Thus, the figure of 22 million is quite real.
Our calculations are also confirmed by the employment data from ADP, published on Wednesday. They even slightly exceeded the -20 million mark.
A logical question arises how to make money on this unique situation that the US have never encountered in their entire history. Since this is about the state of the US economy, the stock market as well as the US dollar are obvious candidates for trade.
The following plan is proposed. Sell in the US stock market, which in the last month completely ignores the fact of the economic crisis, despite extremely weak statistics and even more failed quarterly corporate reporting. But this cannot last forever. Sooner or later, bulls in the stock market will have to admit the fact that economic reality has changed dramatically and has changed for the worse, and the stock market has not yet taken this into account in prices. So Friday’s data is ideal for the role of a cold sobering shower. That is why we recommend selling the US stock indices today.
In general, if you listen to any competent expert, then this development of events seems to be the only reasonable option. For example, the head of BlackRock ($ 8 trillion under management) Larry Fink said that the United States should prepare for massive bankruptcies among small and medium-sized businesses, empty planes and cautious consumers, as well as raising the corporate income tax.
As for the US dollar, three months ago, on such data expectations, we would recommend selling it literally for the entire margin. But now the situation in the financial markets has changed. In the last couple of months, at times when the markets are scared, the demand for the dollar has increased dramatically. That is why, no matter how strange it sounds, we recommend buying a dollar against the backdrop of disastrous data on the US labor market. Motivation: weak data is a reminder to markets that have recently relaxed greatly, how deep the economic abyss is. A natural reaction to this will be an increase in fear, which in turn will provoke an increase in demand for dollars. Note that the markets are not only interested in the dollar itself, but rather in the absence of risky US Treasury bonds, for the purchase of which dollars are needed.
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