NFPReportbeyondexpectations

For a world which runs on consumer sentiment there can never be more positive news than having a better than expected jobs report. It is the employment figures that create the virtuous cycle of improving consumer sentiment, increasing spending, demand creation and ultimately new capacity creation to fulfil the demand. So it is no surprise that the NFP report released in the US on Friday is having such a salubrious effect on markets across the world. Against the market expectations of 7.5 million jobs being cut in the month of May, the actual figures indicated that there were in fact 2.5 million jobs added. The unemployment rate also fell to 13.3% against the forecast of 19.8% for the month and the previous month’s figure of 14.7%.

The Dow Jones jumped up by 3.15% closing the day at 27110. The all-time high for the Dow Jones is around 29550 made in February this year. The US 10 year yield is now trading at 0.90 against the 0.75 it was trading at last Thursday. The Japanese Yen is also depreciating against the USD, and is currently trading at 109.50 which is its lowest level since March. Gold is also back below 1700$/oz levels, trading at 1688$/oz now. The emerging market currencies have also shown some strength in the trade today. The arguments against the risk on trade, like a potential second wave in developed countries, the deepening first wave crisis in south American and south Asian countries, the credit issue and structural destruction of demand in various countries, appear out of favour currently. The V shape recovery is the most likely scenario as per the market wisdom right now.

The Indian rupee is trading at 75.55 currently. The 10 year benchmark bond is at 5.83 and the stock markets are up by close to 1.5% now. The foreign currency reserves with RBI are at an all-time high of 493 bn USD which is equivalent to 12 months of imports. The FPI segment, which had seen an outflow of close to 140k Cr INR in total during the months of March, April and May, has been on the inflow side in the first week of June. Apart from that, a few big and concentrated deals on the FDI front have also resulted in ample USD inflows into the country in the last few weeks. As the stated policy of the RBI remains that they will not target a particular level for the currency but intervene in the market to smooth out the volatility, it can be expected that given such a healthy war chest with the Central Bank, a sudden downward move in the currency can be ruled out. We saw last week that the impact of the rating downgrade by Moody’s was handled calmly by the rupee market as it continued to trade within a range.