Summary:
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US stocks begin final session of the week higher
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Big NFP miss (+75k vs + 175k exp) offset by upbeat trade comments
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S&P500 up by 125 points (4.5%) from Monday’s low
US stocks remain remarkably resilient in the face of negative news, with the market seemingly shrugging off a big miss in the April jobs report to remain close to their highest levels of the week. The non-farm employment change came in at 75k vs a median estimate of 184k and it seems like Wednesday’s ADP data which fell to its lowest level in 9 years was an early warning sign. As we pointed out in the market alert, in the 5 occurrences since 2010 that the ADP has come in below 90k the average NFP following was 72k and today’s print was very much in keeping with previous occurrences.
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US stocks dipped after the NFP miss but quickly recovered, aided by some positive comments from Xi. Source: xStation
The fact that equities have remained largely unperturbed despite the bad data could be explained by the fact that bad news is now potentially seen as good, with the worse the economic outlook gets the greater the chance the Fed will begin to cut rates. Moreover, not long after the jobs data hit there were some well-placed comments from Xi Jinping, as the Chinese president stated that they should find a solution to the trade war despite disagreements. Xi said that “one shouldn’t resort to one-sided approaches and protectionism” in what appears to be a clear sign of willingness to de-escalate the recent tensions.
It’s shaping up to be a nice week for stock market bulls with the S&P500 now up by almost 5% from Monday low around 2728. While a cooling of trade tensions on both the Mexico and Chinese front with the US has boosted sentiment, the markets seem to be mainly rallying on growing hopes for Fed rate cuts - and the bad NFP data has only served to heighten these calls. Whilst most data still points to a slowdown in the global economy and there has been no real tangible progress on the US-China trade front, the recent price action suggests that bulls have wrestled back control of the tap with a large bullish outside week forming for US stocks.
After attempting to break lower at the start of the week, US indices have bounced strongly with a big bullish engulfing hammer seen on a weekly chart. Source: xStation
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