All eyes on US Nonfarm Payrolls
US employment data overnight drew a collective sigh of relief from markets, as both Initial and Continuing Jobless Claims showed modest improvements. Although it was enough to lift Wall Street stocks, it wasn’t enough to lift the US dollar, which was content to march on the spot throughout the US session.
A much sterner test of resolve arrives this evening in the shape of the US Non-Farm Payroll data, as well as the official Unemployment Rate. Non-Farm Payrolls are forecast to rise by 1.5 million jobs, less than last month’s goliath 4.8 million jump. Unemployment is expected to fall to 10.50% from 11.10%.
With stocks enjoying a multi-day rally, and the dollar under a constant artillery barrage all week, the risks are that a disappointing number and or a massive downward revision sets off a potentially ugly short-term correction. That could see the US dollar jump, stocks retreat and also knock gold off its record-highs perch. An aggressive fall by US stock markets would be a stern test for gold, as recent times suggest the two have a high correlation in such circumstances.
Asia has been dominated by concerns over US politics today. The stimulus clock is going Tik Tok towards the Republican and Democrat Friday deadline to reach an agreement over the follow-on stimulus package. A failure to reach an agreement is potentially another strong negative to the one-way price action across asset classes this week.
President Trump has been busy this morning, with executive orders flying off his desk. The President is allegedly prepared to executive order his own stimulus package if the Congressional sides cannot reach an agreement. There remain doubts as to whether he can legally do this though. Appropriation bills must originate from the House of Representatives, for example. However, I am sure such details will not bother him too much.
What has spooked Asia is his executive order encore, though. The President has announced a ban on US companies doing business with WeChat, owned by Tencent, and ByteDance, the owner of TikTok, on national security grounds. US companies have a 45-day window to comply.
That has spooked Asian markets, with Hang Seng and offshore Yuan notable early casualties. It comes after news that Microsoft is allegedly now looking to buy all TikTok’s operations outside of China. It highlights the challenges Chinese companies will have, emerging internationally from behind the great firewall of China’s protective cocoon. At the heart of the matter are concerns about Chinese companies’ security law obligations to the government on the mainland. Especially with regards to the terabytes of data that they collect from international customers. Apart from conveniently playing into populist presidential hands ahead of an election, the US does have a fair point regarding the above.
Apart from the obvious fallout to Tencent and ByteDance, Washington DC’s moves are sure to ratchet up geopolitical tensions with Beijing once again, after a relatively quiet couple of weeks. Fears over a Chinese response is likely to weigh on US stocks as well, particularly those with a substantial China presence such as Microsoft itself. It would not surprise me in the least if the CEOs of Microsoft and HSBC were spotted having commiseration drinks together in a bar later this year.
Lost in WeChat noise, President Trump also issued a recommendation that proposes banning Chinese companies from listing on US stock exchanges that do not comply with US accounting standards. Amongst the politics, there are quite valid corporate governance concerns on this front. Again, all silk roads lead back to China’s security regime on the mainland. Luckily, China has it’s newly brought to heel vassal outpost in the shape of Hong Kong. The US loss will almost certainly be the Hong Kong Stock Exchange’s gain in the years ahead.
The increase in geopolitical noise, and a stimulus deadline approaching rapidly, are casting quite the shadow over Asia today. If nothing else, it increases the dangers of a potential ugly end of week correction to asset markets if their Non-Farm Payrolls do not deliver.