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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.

Markets bounce back on stimulus hopes

Markets today bounced back as stimulus talks have come back into question. The NASDAQ is up around 0.7%, while the S&P 500 and the Dow Jones were up 0.8% and 0.43%, respectively.

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

This is after the Market's fell around 1.4% a couple of days ago on Trump's tweet, stating that he has entirely stopped stimulus talks, saying Nancy Pelosi has been negotiating in "bad faith." However, Trump has slowly come back on the statement, as Trump allies believe it may have created the political risk he'd be blamed entirely for the economic fallout. He told Fox Business that he has reinstated talks about a stimulus bill and is now "starting to work out." "We started talking, and we're talking about airlines and we're talking about a bigger deal than airlines. We're talking about a deal with $1,200 per person, we're talking about other things."

The contested stimulus bill was between the Democrat's $2.4 Trillion dollar proposal versus the Republican's $1.6 Trillion dollar proposal. The Democrats have countered with $2.2 Trillion. However, the white house has not provided a counteroffer to that proposal. Nancy Pelosi is also pressing for language in the bill to limit Trump's ability to deliver virus testing and treatment funds to other projects.

Oil Markets seeing a rise

WTI up 3.3%

Furthermore, we saw Brent Crude and WTI rise around 3.3% as energy companies on the Gulf coast evacuated 183 offshore oil platforms and halted nearly 1.5 million barrels per day as a safety precaution to Hurricane Delta. WTI and Brent are hovering around $41.25 and $43.32, respectively.

Europe Markets seeing a slight sell-off

In the European markets, we saw the EUR/USD sell-off after ECB officials signaled that they were ready to ensure inflation moved towards their mandate, including slashing their already negatives rates and broadening their Targeted Longer-Term Refinancing Operations (TLTRO's), which stimulates banks to lend. EUR/USD is down around 0.2%.

Markets Moving: Metals, Oil and Equities up, Tech down

Markets have been moving today on the back of positive vaccine news amongst concrete stimulus hopes.

Silver rallied to a peak of $21.319 as investors and traders bet that a push to green energy will provide a silver lining to the metal. It is interesting to note that Silver has outperformed its counterpart Gold, with a 70% rise since its March lows. Analysts at Citibank expect Silver to hit $25 an ounce by the middle of 2021. Citi expects a clean energy push if Joe Biden, Democrats Presidential Nominee, gets elected. Biden has placed importance on clean energy in his $2 Trillion plan to push the US out of the Coronavirus's recession. Furthermore, the latest stimulus 750 Billion Euro stimulus plan from the EU has allocated a third of that recovery fund into fighting climate change. Silver is extensively used in the production of solar panels.

Silver trails Gold in returns post Coronavirus lows

Gold markets aren't doing too bad either

However, Silver's rise does not mean its Gold counterpart is doing too bad either. Gold reached a new time high, with the spot price rallying to 1,483.45 an ounce before pulling back slightly.  Over $40 Billion has flowed into gold-backed ETFs in the first year, breaking last year's record. Downwards pressure on the US dollar due to quantitative easing and fiscal stimulus has forced investors to look towards these metals for yield.

Oil markets get a fresh boost from backwardation

Brent Crude Oil broke past $44 in the New York session as fiscal stimulus and backwardation finally broke past the resistance of $43.929. The black gold reached a peak of $44.998, before pulling back slightly. However, oil still has a little bit more to fill that gap to $45.228. This is in the midst of Chevron acquiring Noble energy in an all-stock deal for $13 Billion, a 7.5% premium from its current value. An industry filled with bankruptcies due to the Coronavirus, Chevron stands out with a strong balance sheet enabling it to take advantage of the crisis alongside keeping their dividend payout.

EUR/USD rallying on unprecedented stimulus

The Euro rallied against the US Dollar, peaking at 1.15289 as the European Union clinches on an agreement on stimulus funding. The recovery fund worth 750 Billion euros hopes to pull the bloc out of the recession. With a myriad of bond sales and taxes to finance the stimulus, the fund expects to give out 390 Billion Euros of Grants to harder-hit countries such as Greece and Italy, and over 360 Billion Euros in loans. "We are 27 around the table, and we managed together to produce a budget," Macron said at a press conference alongside Merkel. "In which other political sphere in the world is that possible, is that done? None."

Equity markets mixed as investors wait on earnings

NASDAQ in Yellow, Dow Jones in Blue, SP500 in Orange

Finally, in the Equity markets, we saw the SP500 and Dow Jones clinching a gain in the New York session, finishing higher than the NASDAQ. This is on the back on hopes that Congress can pass a second stimulus deal. However, agreement on the size of the stimulus cannot be agreed upon. Nancy Pelosi believes that $1t is "not close to enough" for the next stimulus. NASDAQ pulls back slightly of their all-time as investors await on tech earnings this week. However, they still lead in earnings relative to other equities.

Anish Lal has some excellent technical analysis on the rise of Silver today.  You can watch it on our YouTube account here.