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US Non Farm Payroll: Will stimulus checks stop people seeking jobs?

The Non Farm Payroll report detailing the number of jobs added to the US economy in March is released this Friday, 8.30 am (EDT). The FED is projecting an optimistic 680K new jobs, while the market consensus is that the payroll will report in at 655K. For context, the payroll value for the preceding month came in at 379K. Since February, the US economy has opened up a lot, explaining the considerable jump in the payroll value.

The US Non Farm Payroll is an important event on the economic calendar, and market makers around the world will be watching the announcement with a sharp eye.

US non

What happens if the payroll number comes in lower than projected?

This is an important question. The market doesn’t appreciate unpredictability, and a hint of weakness in the US economy could lead to some sharp corrections.

The Russell 2000 index has been on a tear for the past year, and a correction could be imminent. A poor March payroll value could be the catalyst for the correction event. Small to medium enterprises make up a decent portion of the US economy (over 50% last time I checked). The Russell 2000 is an index comprised of small to medium enterprises. Thus, the health of this sector is under intense scrutiny when payroll numbers are released. With such phenomenal success in the past year (up ~98%), the index is begging for something to slow it down.

What might cause a low payroll value?

Perhaps the US economy is not as resilient as the market thinks. Or maybe, and here I would like to posit a question: Might the stimulus checks dissuade the unemployed to seek work? It is not a crazy assumption, a little “right-wing” for my taste, but entirely unfathomable. It could be argued that a portion of those unemployed in the previous month have less incentive to find work when the government is providing Covid relief checks.

Mix in the possibility of the White House sending out another round of stimulus checks, and the impetus to find work is further diminished.

US Non-Farm Payroll posts 4.8 Million Jobs in June.

United States Non-Farm Payroll posts 4.8 Million jobs in June, beating analysts' expectations of a 3 million gain. The unemployment rate also fell to 11.1% in June, forecasted at 12.5%.

Non-Farm Payroll

However, permanent job losses spike

2.1 million of the 4.8 million new jobs were created in the leisure and hospitality sector. However, permanent job losses jumped to 588,000 to 2.8 Million permanent job losses. This is the second-worst month in 20 years for permanent job losses, losing to January 2009 during the Global Financial Crisis.

This is on the back of the United States, topping 2.74 million total Coronavirus cases. Daily new cases increased to 52,600 from 47,000 yesterday. However, President Donald Trump stated that the employment numbers prove that the economy is "roaring back." Donald Trump predicts a resurgence before the November election, with no reference to the state of the Coronavirus in the United States.

The NASDAQ reached a record high, ending at 10,367, a 0.54% gain for the day. Other major indices edge higher, with the SP500 and the Dow Jones posting 0.12% and 0.41% gains, respectively. Interestingly to note, Gold also ended higher with futures ending at $1,788. This may be attributable to investors and traders understanding that the Coronavirus risks, especially in the United States, are still a big threat to the recovery of the economy. This is alongside major fiscal and monetary policies that have helped provide liquidity and elevating equity prices.

NASDAQ in Blue, SPX in Orange, Dow Jones in Teal

Equity markets post record highs and macro-environment tenses

Equity markets, specifically in the United States, have been resilient during an extreme macro environment. Inequality protests dividing the nation, political tensions rising domestically and internationally with the election approaching amongst China's power grab all amidst a pandemic which caused the greatest jobs lost in United States history. With non-farm payroll posting better than expected results over the past two months, a sense of progression in the road of recovery may cloud investors and trader's judgment. Furthermore, with the FED providing virtually unlimited support, it would be reasonable to assume that participation in this market would be met with accommodative conditions.

However, the Coronavirus is still preventing many states from opening. New York is still now allowing in-person dining –from a state that has flattened the Coronavirus curve through the relatively strict lock down. Texas just imposed a mandatory face mask requirement. Florida records its highest death rate. Permanent jobs lost in the United States are still increasing. Investors and traders need to tread carefully before investing their hard-earned dollars into these propped-up markets.

Trade safe.