This week is packed with the data on global markets but without a doubt the Friday’s payrolls are about to attract the most of attention. The market prices in a remarkable improvement in this area. A market consensus of a loss of 110k of jobs would be the best figure since January 2008 and an improvement by 80k in comparison to October. This is slightly more than the average improvement since January (61k) but within the reach especially taking into the account a recent drop in initial claims. On the other hand the number is just an estimate and a statistical error here is substantial. Therefore the outcome on Friday is not certain.
While the payrolls number will be critical for the sentiment, the industrial ISM will tell us more about longer trends. The index not only predicted significant rebounds in the history (including the recent one) but also was quite accurate when it comes to major reverses. Actually a 50 points line (in theory separating contraction from expansion) seems to have little impact. According to our estimates ISM at 50 points corresponds with an expansion of 2,4% annualized in the US GDP. More important are turns of the trends in the index. In the past many times the index peaked together with stock markets (this time the trends in the stock markets and in the EURUSD and USDCHF may culminate at the same time) or not long before. In other words even if the index reached 70 points (extremely fast economic expansion) and then reversed to 60+ it was a bearish signal for the stocks. In October the index surprised the market leaping from 52,6 to 55,7 points, the highest since April 2006. This time the market expects the index to make a step back (to 54,7 points) which wouldn’t be a disaster for as long as the next one is a leap again. Anyway if the history is any guide, the index needs to move forward to support the hopes for the V-shaped recovery. A stagnation – even if above 50 points, isn’t bullish anymore.
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Przemysław Kwiecień  |
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