April non-farm payrolls: huge job losses expected, but how will markets respond?

April NFP set to provide earthquake moment

The US non-farms payroll (NFP) report, to be released on Friday, is expected to provide an ‘earthquake moment for global markets.

While investors have become inured to weeks of initial jobless claims in the millions, to see an NFP report (which usually oscillates around the +200,000 mark) with a reading of -20 million or more. Similarly, the US unemployment rate is expected to shoot up from its current 4.4% to at least 14%, if not higher. This, as the Wall Street Journal notes, would eliminate every job created in the past ten years.

This would be the highest unemployment rate on record, surpassing the 1982 high of 10.8%, while the loss of over 20 million jobs will far surpass any other month, beating by a factor of ten the 1.96 million lost in September 1945, when the US began its shift away from wartime production.

These figures are likely to cause shock across the financial world, but it is important to remember that these figures are expected, and are in a similar range to the sum total of initial jobless claims since mid-March. We should not be blasé about the economic and social impact of these losses, but it is vital to recall that markets expect this week’s figures to be bad, and thus those expecting a huge reaction to the downside for risk assets such as equities may be disappointed.

Bad news may not move the markets

Indeed, since this crisis began we have seen so many dramatic events which would have been considered very dire just a few weeks ago, for example a gross domestic product (GDP) reading of -4.8% for the US, millions of initial jobless claims each week, and the abandonment of guidance and dividends across a swathe of sectors. This NFP report is merely the latest shocking figure.

Markets seem to be trading entirely at odds with the real economy. Certainly, it does not seem sensible to see equities rising in a time of such dire economic and corporate news. But with the Federal Reserve (Fed) and other central banks providing liquidity, and more government stimulus likely around the world, investors have to look to the longer term.

The bad news we can expect for some time to come is very much the ‘known known’ – markets have already moved to discount it. Unless we see the revival of strict lockdowns, in tandem with much higher infection and death rates, with a concomitant deterioration in economic data the next few NFPs, bad as they are, may have relatively little impact on stock markets.