Tomorrow’s jobs report will be one for the history books: with a record 19% Unemployment, and an additional 7 million job losses added to the 20 million from last month, the labor picture will be far worse than anything observed before in US history, eclipsing the darkest days of the Great Depression.
Indeed, as NewsSquawk writes in its payrolls preview, “the data is likely to be horrific, although it tells us what we already know.” So will stocks close green? Probably, since the extent of the pandemic gloom has already been heavily discounted by the market which is expecting a miraculous V-shaped recovery, and instead traders’ focus is on the direction and speed of travel. Furthermore, there is little in the BLS report that will offer any forward-looking insight – that will depend on progress regarding the reopening of economies, and official support measures. With that said, a ‘solid’ ADP report which was much better than expected stoked a rally in risk assets, which resulted in significant curve steepening and equity upside along the lines of a reflation trade, offering hope that the economy may be more resilient than feared (the more likely explanation is that the ADP report was once again massively wrong).
Meanwhile, as US data surprises have improved over the last two weeks, and risk assets seem more asymmetrically sensitive to ‘re-opening and recovery’ developments, progress on treatments, testing and tracing, as well as stimulus from global policymakers; this has underpinned the recent rally in the S&P 500 despite historically stretched p/e valuations, negative headline risk (US/China), and a limited appetite in Washington for another hefty fiscal injection.