Markets turn immune to negative macro data – Market Analysis – May 8

Markets turn immune to negative macro data – Market Analysis – May 8

Overconfident markets ignore worrisome macroeconomically indicators

The US job market

The North American employment figures were published and, although they have not reached the forecast levels of the market, they've been negative to such an extent that they are only comparable to those of the Great Depression of 1929.

The unemployment rate has risen to 14.7%. However, some analysts estimate that this figure would be significantly higher, around 24% if stricter statistical criteria such as part-time jobs and temporary contracts were to be taken into account.

The participation rate data has decreased to 60.2% as a result of the lower expectation of the active population to find employment and that of average hourly earnings rebounds to 4.7% in monthly terms due to the more significant loss of jobs in the population sectors with lower qualification and therefore with lower wages.

In summary, a jobless figure of 20.5 Million is not a good sign for the North American economy.

The inelasticity of equities

However, the stock markets remain convinced of a speedy recovery and assume that these employment data are isolated events that will disappear when the economy returns to normal after the reopening process that has already begun. All the warnings from health experts and epidemiologists about a possible worsening of infections and even a second wave of infection if this reopening is done hastily are not echoing among investors.

Proof of this and the overconfidence of these markets is that after the publication of the employment figure, as it is slightly less negative than expected, the leading North American indices reacted immediately with purchases.

The only cause that explains this unusual phenomenon is the Fed's monetary policy. The enormous amount of liquidity that it is injecting into the system through its QE program and its promise to increase it when necessary has served to support the stock market, but on the other hand, it is reflected in interest rates. The futures of the Fed funds anticipate negative rates for the end of the year. Some members of the Committee of Monetary Policy of the Fed do not rule out that it occurs, and as an example, the yield of the American 2-year bond has reached historical lows at 0.109%.


This decrease in interest rates has had a partial effect on the price of the Dollar. In a traditional market behavior, the downward rates cause falls of the Dollar; in fact, the DollarIndex has experienced a slight fall in the day.

But the performance of the Dollar has not been symmetrical against all the counterpart currencies. Against the pound and the Australian Dollar, it has lost around 0.50%; against the Euro it has remained practically at the same levels, and against the Yen it has strengthened slightly.

This performance reflects the lack of risk aversion that the market is experiencing despite the figures.

USD/JPY continues to remain in a downtrend but will need further weakness in the stock markets for declines to resume.

The case of AUD/USD is especially significant in this unusual market scenario. Although the Australian Dollar is a currency highly correlated with the economic cycle and with the price of commodities, despite the deep falls in world GDPs and the fall in the cost of the primary raw materials, the pair has recovered its initial falls, and it is only two figures away from the level it had at the beginning of the crisis.

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