• Joel

Big Boost For Stocks After Another Big US NFP Beat

US equities shot higher in wake of a second strong month of official US jobs data. S&P 500 futures, which had been trading around 3125, shot 20 points higher in the immediate aftermath of the data; 4.8mln jobs were added to the US economy in June, much higher than expectations for 3mln. In sum, over the last two month, the US economy has added 7.2mln jobs, taking the unemployment rate down to 11.1% from its pandemic peak two months ago of just shy of 15%.

Note: apparently there was a misclassification error and actually the unemployment rate is 1% higher, so 12.1%. Moreover, despite an increase in the total number of US jobs, the number of permanent job decreased by a further 0.588mln.

Even so, a strong NFP report there net net, which suggests that the US economy went into July on a firmer than expected footing - hence the gains we saw in the stock market.

In terms of how other asset classes reacted; the USD reaction was mixed, the currency again caught between USD negative risk off flows and USD positive optimism on the US economy. Gold, meanwhile, was hit; the precious metal is now picking up on earlier downside momentum and has broken below $1760.

We also had weekly jobless claims data, which gives insight into the state of the US economy over a smaller and more recent timeframe (the end of June). This data was a little less positive than the official jobs data release; Initial jobless claims were 1.427mln over the last week (exp. 1.355mln), while continuing jobless claims remained elevated at 19.29mln (exp. 19mln).

In other words, the jobless claims data is increasingly telling us that over the past few weeks, improvements in the US labour market have stagnated.

Given the increased rate of spread of Covid-19 towards the end of June, which is expected to weigh on economic activity and the labour market, it would make sense that the rapid pace of job gains seen in May and June would begin to cool heading into July.

Therefore, though stock markets have responded positively to this data, an element of caution is warranted; July data could be MUCH worse.

Much of how the US economy performs in July will be determined by the spread rate of the virus (will it continue to accelerate and trigger further lockdowns), the fear with which consumers/business will respond to the viruses higher prevalence. 


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