Markets surge as a stellar NFP report smashes all expectations
How could the economists get it so wrong?
Markets rocked and rocketed yesterday. The most watched Non-Farm Payroll data was the catalyst. The Labor Department reported that the US economy added a shocking 2.5 million jobs in May. Add to that the unemployment rate fell to 13.3%.
The financial smarty-pants (i.e. economists) expected a loss of 8.3 million jobs and an unemployment rate of 19.5%. The surprise element was incredibly positive for the markets. How could the economists get it so wrong?
So, it is clear that the stimulus measures have helped employees in their jobs, even in unemployment. The reopening of businesses should accelerate re-hiring. But it won’t be as easy as what we are seeing now. We will elaborate on that through future special reports.
Airline stocks did extremely well yesterday and cruise line stocks too. For the first time since the pandemic started, American Airlines group will have more than half of its fleet up in the air. A lot of movements in heavy metal. Let’s dive in.
EQUITIES
Markets have turned more bullish than ever and that doesn’t make us comfortable.
We have been discussing about the CBOE put/call ratio. It is a short-term measure of market strength or weakness. On Friday, the ratio fell to 0.44 the lowest level in six years. It implies that investors are buying more than two calls for every one put, declaring that this rally is here to stay.
In a market like this, it is exceedingly difficult to pick clear tops and bottoms. In fact, the market has exceeded our expected targets on the top side and filled most of the gaps that existed on the way down. The S&P 500 rallied to 3212 yesterday and is only a few percentages away from its top on Feb 19th.
All our sentiment and breadth indicators are in extreme territories. So, we will have to ride out this current madness to be more rational.
BONDS
As reported previously, bonds are working its way down. The move down will go through significant retracements too. Resistances lie in the range of 174 to 176 but our expectations are for much lower bonds.
EURO
As feared, the Euro showed further strength and even exceeded our top levels for a short time before pulling back sharply. Friday’s high of 1.1384 is a significant level now. We will be worried if it closes above that. If not, we will entertain our initial thesis of a weaker Euro.
GOLD
Gold fell out of the bed yesterday and is trading below our key support level. The key thing is prices are making lower lows and lower highs which is the textbook definition of a down trend.
Remember in March of this year, the spread between spot gold prices and gold futures had risen to the widest level in four decades due to transportation issues on account of the pandemic.
This was something like what happened in the oil markets when prices dropped to (-)40 in the futures market. It was a mechanical and technical issue. Not that you could have gone to a petrol station, filled your tank and requested the teller to give you some money for filling the car.
This anomaly created a lot of demand for gold in the retail market, but the professionals have taken good advantage of this by playing both sides of the market creating excessive volatility.
Since then, record amount of gold has been shipped from Switzerland to US in April to ease the COMEX pressures. There is a big increase in the production of gold at the Perth mint in Australia too. The premium that existed before is out of the way and it is a sellers’ market. So, it is a hard decision to be long Gold.
Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.
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Breezy Nuggets
1) ZoomInfo shares (not the Zoom you've been using in lockdown and definitely not Zoom Technologies) jumped 60% yesterday on their stock market debut, valuing the company at ~$13 billion.
2) Divorces in Saudi Arabia have risen 30% during the coronavirus pandemic, as some husbands were found to have multiple wives.
3)Amazon and Slack have struck an agreement for Slack to be rolled out and made available to all 840,000 Amazon employees, which comes after an otherwise disappointing quarter for Slack.
4) Twitter is having a moment right now, with over 677,000 downloads in one day according to Apptopia.