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US Non-Farm Payrolls and the first debate

Market Update

US Non-Farm Payrolls and the first debate

This Friday brings us the last US Non-Farm Payroll update before the Presidential Election on 3rd November. Given President Trump’s belief that he’s been single-handedly responsible for at least three years of an economic boom, it could be that this release holds greater market importance than usual. That’s not to say it will set market direction as we head towards polling day itself. Rather, we should expect a sharp pick-up in volatility should the numbers come out markedly different from the consensus expectations. The coronavirus pandemic which finally broke back in March has seriously damaged Mr Trump’s wish to go into the election boasting about the strength of the US economy. The best he can do is point at the stock market as it hovers below all-time highs and try to convince voters that he has engineered a V-shaped recovery by keeping the economy open.

Trending down

Certainly, the president will be hoping for a big, positive payroll number. Wednesday’s better-than-expected ADP private payrolls helped to lift sentiment, even though there’s very little correlation between the two data sets. Going into Friday, the consensus expectation is for a payroll increase of 900,000. If so, this would be significantly lower than last month’s rise of 1,371,000. The carnage in March and April saw combined losses of over 21 million jobs. The following four months saw an impressive bounce-back with a total payroll gain of around 10.5 million. But the rate of increase has slowed since June and if the forecast of 900,000 is accurate, this will be the first time since then that the monthly payroll increase has fallen below 1 million.

Record unemployment data

As far as the Unemployment Rate is concerned, the expectations are modest. Unemployment is expected to slip back to +8.2% from 8.4% in August. Putting this into perspective, earlier this year that the Unemployment Rate for February came in at just 3.5%, equalling the lowest US unemployment rate for over fifty years. Just two months later, the reaction to the coronavirus pandemic saw the rate soar to 14.7% - the highest rate and the largest month-on-month increase in the history of the data series, going back to January 1948.

More stimulus?

So, with payrolls still down over 10 million since the start of the pandemic, it could be argued that the US is some way short of a V-shaped recovery. Following recent statements from the US Federal Reserve concerning boosting inflation and employment, this suggests that the central bank will continue to provide monetary stimulus for years to come. But there’s still no sign that Congress will agree further fiscal stimulus. The Republicans are baulking at the Democrat’s plans and the amounts demanded. Perhaps members of the GOP are looking at the S&P 500 and wonder what the problem is when the index is hovering below an all-time record high.

New quarter

Many investors will be relieved to see the back of September. Despite an impressive recovery in the last few trading sessions, all the major indices lost ground over the month. This proved particularly traumatic as stocks began September by surging higher, taking the Nasdaq 100 and S&P 500 to record highs. We’re now in the fourth quarter of 2020, heading for the home stretch and the year-end. Many people will be desperate to wave goodbye to a truly dreadful year blighted as it was by the outbreak of Covid-19. Regrettably, it seems more than likely that the virus will still be with us in 2021. On the flip side, there’s growing optimism that a vaccine will soon be developed which will help to reopen the global economy.

First presidential debate

The first presidential debate of three was held in the early hours (as far as the UK was concerned) of Tuesday morning. Typically, Trump supporters called victory for their man, while Biden’s people insisted that their candidate had carried the day. But for the vast majority who stand somewhere in the middle, it was generally agreed that it was a truly unedifying spectacle which was a stain on the election process. Almost immediately, the debate became personal. It turned out to be 98 minutes of ‘two old white men’ hurling insults at each other, as if Statler and Waldorf from The Muppets turned their invective and ire on each other rather than on Kermit and the rest of the cast.

Markets rally

But as far as investors and traders were concerned, it was all pretty good news. The attacks on China came from Trump and focused on the coronavirus, not trade. There was no bank-bashing, something that could have been expected from a Democrat. Even if Joe Biden is a ‘wooden horse’ providing cover for the hard left within his party, he didn’t fall into any traps by pandering to them. It was the same thing over healthcare. For all the huff and puff, commentators left the debate feeling that Obamacare is here to stay, given that the President failed to undo it over the last four years. Health care and drug company stocks flew higher.

Smart News

Global stock markets have rallied sharply over the past week, making back some of the losses suffered in September. Can the major indices hold on to and build on these gains, or will uncertainty as we approach next month’s election lead to another round of selling? You can follow all the news that matters to markets by clicking on our Smart News widget in the bottom right hand corner of the trading platform. Here you’ll see all the top social media commentary regarding Non-Farm Payrolls, the election and everything else that influences investors, helping you with your trading decisions.




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