Overall, market sentiment continues to improve.
Despite the bad numbers in the economy, investors have their sights set on a future recovery, and according to the rhythm of the markets, most expect it to be fast. In any case, we will have to wait some time to be able to assess it with more precision.
Today, the jobless claims in the USA have been published, marking again over 3Million, adding up to a continuing figure of 22.6Million.
The Non-Farm Payrolls
Soon, the critical number of jobless rate and non-farm payroll will be announced. Analysts are forecasting abnormal numbers for this figure: -22M for non-farm payrolls.
To get a comparative idea of how disruptive this figure is, the average in the last 20 years has been +200k, with the sole exception of 2010, when markets saw a drop to around +500k. Analysts expect the unemployment rate to surge to 16%.
Under normal market conditions, a substantial decrease in the number of non-farm payrolls, not necessarily as massive as this, would mean a significant drop for the Dollar, massive sales of stock markets and widespread purchases of treasuries as a safe-haven asset. The latter has already occurred due to the intervention of the Federal Reserve, which has lowered bond yields to record lows.
Everything indicates that market participants discount the weak employment figure. Still, it could be the case, even more, if it were worse than expected, that Dollar sales would intensify more buying of treasuries, lowering yields a little more.
USD backed assets
Today was a perfect risk-on day with purchases of all assets. The market started buying Oil due to the improvement in demand expectations that the reopening of the economies will produce, although it later corrected the gains. BrentOil has touched the next resistance level at $32 again.
Stock markets have also continued to tiptoe higher with USA500 approaching first resistance line at 2888 points.
GOLD has also found strong demand in the market, approaching critical technical levels around $1725 an ounce. Surpassing and closing on the daily chart over it would encourage buyers for more distant targets in the area around $1800 an ounce.
For this bullish movement in the financial commodity, there are clear fundamental reasons based on the monetary expansion of the central banks that will undoubtedly continue for an extended period.
The bond market
The markets have also bought US treasury bonds in all their references; the yield on the 10-year bond TNOTE10 has fallen from 0.71bp to 0.62bp, and futures contracts are beginning to anticipate negative interest rates.
This move makes sense when you consider that the Federal Reserve has put a tremendous amount of liquidity on the market and may need to increase it in the future.
Employment data could increase this buying pressure on treasuries, and this, in turn, would have adverse effects on the price of the Dollar, mainly in USD/JPY, which traditionally maintains a high positive correlation with yields of US long-duration treasuries.
As we can see in the USD/JPY chart, it has broken down a first support level located at 106.93 and has managed to go below the 0.50% Fibonacci retracement of the entire last bullish leg situated at 106.41. From a technical perspective, the path to the 0.618% Fibonacci retracement at 105.17 remains open.
The non-farm payroll figures we will most likely see predict broader movements for equities, especially in the currency market, say market analysts.