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Markets Brace for Unprecedented US Job Losses




US ADP National Employment data today (collected by ADP, a private company) showed that just over 20.2mln Americans lost their jobs in April. Though this was in line with market expectations (expected was 20.05mln), the number is still astonishing.


Today’s ADP release sets the tone for the official monthly US jobs report, Non-farm Payrolls (compiled by the Bureau of Labour Statistics), which will be released on Friday at 1330BST/0830EDT.


Markets expected the report to reveal that 21.8mln Americans lost their job in April, which would make official what we already know has been an unprecedented rise in unemployment over such a short period of time.


Prior to the great Covid-19 lockdowns of 2020, the record rate at which the US economy had shed jobs had been roughly 800k in one month back in the depths of the financial crisis.


Subsequently, the unemployment rate is seen rocketing to 16% from 4.4% last month. Meanwhile, there are no expectations for the participation rate, but I would be shocked if it didn't go lower; current labour market conditions are highly discouraging for those on the fence about whether or not to continue/start looking for work.


What does this mean for markets?





Though unemployment numbers such as these would have been unimaginable just months ago, markets are very much expecting a bad number. That is because Weekly Jobless Claims data has been updating us every week on the state of the US labour market; we now know that more than 30mln Americans have lost their jobs since the pandemic began.


Sure, a MUCH worse than expected number on Friday might trigger some nerves and some risk asset selling, but we all know it is going to be bad.


What markets are focused on now is the economic recovery and the factors that influence this.


The faster the US and global economy can reopen for business, the better, in the eyes of the market, but not if that means there is another big spike in Covid-19 cases (which would risk lockdowns being re-imposed again).


After that, the profile of the economic recovery (at first indicated by PMIs, then shown by GDP data) will be closely scrutinised. The more L shaped the recovery (as in, the longer it takes for the economy to get back to pre-Covid-19 levels) the worse this will be for risk assets, which according to many analysts, are pricing in something more like a U-shaped recovery (i.e. big drop, slow recovery in the initial stages, followed by faster recovery in 2021). 


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