Why the Stock Market Grew on the Failed Data from ADP

٣ فبراير ٢٠٢٢

The most interesting and noteworthy in yesterday's news background is, perhaps, the data on US employment from ADP. Yes, the markets are much more interested in official figures in the form of NFP, and the correlation between NFP and ADP is about 25%, but still this is an indicator that directly characterizes the US labor market.

So yesterday, according to ADP, the US economy lost 301K jobs in January. Once again, it did not show a smaller increase than the markets expected (and the markets were counting on 200K+ after the growth of 776K in December), namely that it lost over 300K jobs. This is a failure. The last time this happened, except for January 2021, just at the start of the first lockdowns.

Tellingly, the basic reason for the failure is the same – the outbreak of a pandemic. This time, omicron, even without full-fledged lockdowns, dealt a rather tangible blow to the labor market. In general, supporters of the idea of ​​further rapid economic recovery have another headache.

A natural question arises: if the data is so bad, then why did the US stock market grow (SP500 and Dow closed the day in positive territory). Indeed, in theory, what is bad for the country's economy is bad for its stock market. The answer to this question lies in the plane of monetary policy and the dual mandate of the Fed. Yes, the US Central Bank is on the warpath against inflation, but it must also take into account the state of the labor market when making decisions. And such data here give hope for a lower level of aggressiveness in the actions of the Fed in terms of tightening monetary policy. And this is definitely positive for the US stock market.

OPEC+ yesterday agreed to increase oil production by 400,000 bpd. Recall that we keep medium-term sales of the asset, even despite its recent growth. The reason was recalled in the OPEC + report: the total surplus in 2022 in the oil market will reach 1.3 million barrels per day. And an excess of an asset is a reason for lowering its prices.

Today is interesting primarily for the announcement of the results of the meeting of the Bank of England, as well as the ECB. And if everything is more or less clear with the second one - they will adhere to the line of ultra-soft monetary policy, then the Bank of England is expected to raise the rate again. In this light, the pound looks quite advantageous on the currency market, primarily against the euro. So the sales of the EURGBP pair look promising.