Overnight Headlines

*USD hit a three-week high on stronger-than-expected jobs data  

*US equities ended lower, tech the main laggard

*NFP total focus, whisper number 790k

USD jumped higher and is still bid after its biggest rally since April, as Treasury yields rose on better-than-expected employment data and a measure of service sector activity climbing to a record high. EUR/USD dropped below near-term support and is trading at mid-May levels while USD/JPY is trading at recent highs above 110.10.

US equities closed lower as gains in economic comeback plays were offset by falls in tech. Value led the way with financials one of the leading sectors, so defensives outperformed cyclicals. US futures are roughly unchanged with Asian shares mixed.

Market Thoughts – Jobs, jobs, jobs

Traders, economists and policymakers were all shocked last month following a weaker-than-expected jobs report for April that showed gains of just 266,000 jobs compared to the one million expected.  Today’s jobs report at 12.30pm GMT will offer an important update on the pace of the labour market recovery and is the last piece of important information for the Fed ahead of its meeting in less than two weeks.

Consensus is looking for jobs growth of 661k in May with estimates ranging form 400k to one million. The whisper number, that is a consensus tracker that takes into account late and adjusted estimates, is now at 790k. This comes after the weekly initial jobless claims dropped below 400k for the first time since the pandemic began, while the ADP report rose to 978k from 654k (though the latter especially is not a strong predictor for NFP).  

With yesterday’s rise in the dollar and it remaining bid this morning, it seems a headline number of 500k-1,000k may see a fairly muted market reaction with low volatility in markets continuing. Anything less will be a major disappointment (again), halt taper talk and see the dollar sell off sharply and stocks move higher. A blockbuster number, with positive revisions to the prior month will see a continuation of the recent move in the greenback.

Chart of the Day – Dollar Index rising from the ashes…

Just when you thought (and wrote) that all those Wall Street analysts were finally correct at the start of the year in saying the dollar would sink to new lows, strong support in the DXY below 90 has seen prices rebound with yesterday’s move taking the index solidly above this mark.

The long-term trend from the pandemic highs is still down with resistance coming in at the first major Fib level of this year’s high/low around 90.82. The 50-day and 100-day SMA then collide just above 91 so acting as the next level of resistance. If this move is simply short covering ahead of NFP, the bears will still need to get below 90 on a closing basis in order to progress towards this year’s low at 89.20.