Markets stunned on massive NFP miss, yields plunge then rebound, stocks pop, gold surges

Investors were supposed to quickly look quickly beyond this nonfarm payroll report. The playbook for the next couple of months was to look for more robust employment reports and try to figure out what is the right balance of pricing pressures that will force Fed Chair Powell and company to begin talking about tapering. This is not happening just yet.

Wall Street was stunned by a strong nonfarm payroll report. April saw 266,000 jobs created, a huge miss of the consensus estimate of 1,000,000. Most leading indicators supported a strong reading, so volatility following the big employment miss was extreme.

The debate on whether entitlement spending is hurting hiring will grow, but in the end this big miss should give Biden more ammunition to push through his next stimulus/infrastructure package. Hiring has been rapidly increasing across the country after an impressive vaccine rollout that has the country poised to reach 50% of the US population to be vaccinated by this month. This is only one report, but this is changing many traders thinking on how this recovery is unfolding.

The April unemployment Rate rose to 6.1% from 6.0%, a big surprise that justifies the Fed’s cautious stance. In March, the Fed upgraded their end of year unemployment target to 4.5%, which now might seem so easy to reach.

Average Hourly Earnings on a monthly basis increased 0.7%, better than expected flat reading. This wage increase is temporary, over the next few months wage pressure will struggle to rise as lower paying jobs return and drag down the average.

NFP react

US stocks rallied after the disappointing nonfarm payroll report allowed financial markets to unwind mounting taper tantrum bets that were calling for a Fed pivot. This NFP report was a gamechanger for macro traders that have been both overly confident in the labor market recovery and were leaning towards believing the Fed was possibly making a policy mistake on holding off taper talks. This employment disappointment triggered a nosedive with Treasury yields, which also sent the dollar sharply lower. The 10-year Treasury yield collapsed to 1.48% before rebounding towards 1.55%.

The Nasdaq got excited with the knee-jerk plunge in yields and will likely lead the charge higher.

Today’s number is disappointing, but the US recovery still remains intact and Wall Street should still expect growth exceptionalism over the coming months, which in the end should lead to much higher Treasury yields.

Fed

The Fed’s semi-annual financial stability report provided a vote of confidence for banks but pointed out that asset prices are vulnerable to significant declines if investor sentiment shifts. COVID remains a major financial risk, while hedge fund leverage is somewhat above historical averages. Leverage at broker-dealers is low and banks remain well capitalized. The Fed’s report didn’t drop anything really new, with Wall Street already prepared to expect that hedge-funds will have to disclose a lot more, and probably more often.

Oil

A shockingly disappointing jobs report gave the dollar a strong bid that helped crude prices extend losses. Oil prices might still have a positive second consecutive week, but it is nothing to get energy traders excited that oil will break away from its tightening trading range. Oil’s short-term outlook remains very mixed. India’s COVID situation could be approaching a peak, with one model eyeing 20,000 cases per day by the end of June.

Gold

Gold didn’t want to stay in a bad place where it didn’t participate in the super commodity cycle. Gold’s best week since last December was starting to see a steady wave of technical buying. Today’s shockingly weak nonfarm payroll report collapsed Treasury yields and that sent gold prices soaring. Gold’s best week since December looks like it could be the beginning of a massive move higher.

Gold’s best friend is Fed Chair Powell and other doves that remain committed to the idea that temporary inflation won’t persist. The Fed’s cap on Treasury yields remains intact and that has given the greenlight for all the gold bugs to return. Gold’s short-term momentum could make a run towards the $1,857 level, which could be followed by a move towards the $1,925 resistance level.

Copper

Copper surged to an all-time high, finally breaking above the highs set a decade ago. The global green revolution is providing a difficult environment for miners and that will keep supplies in deficit. The world’s largest copper trader, Trafigura sees the copper rally continuing to $15,000 a ton.

Bitcoin

Cryptocurrencies got a boost from a disappointing employment report that sent the dollar into freefall. Post-nonfarm payroll, most cryptos could start to consolidate ahead of Elon Musk’s Saturday Night Light appearance. Dogecoin, now with a market cap of just under $80 billion, has been settling around $0.60, while Ethereum hovers near record highs above $3,500. Bitcoin remains trapped in a trading range as investors await to see where the next big endorsement will come from to help drive the next wave of investments. It is getting harder for Bitcoin as many cryptocurrency traders diversify their crypto holdings.

Post-SNL, some crypto traders could abandon short-term Dogecoin bets once it becomes clear that it is not skyrocketing to the moon or at the heavily eyed $1 level. The retail-army of traders that have been committed to Doge might remain stubbornly hodlers, so we shouldn’t be surprised if a sell the event reaction does not happen.

Weekend volatility has been elevated for Bitcoin over the past couple of months, but it seems it will take a major new development to break it out of its $47,000 to $60,000 trading range.