NFP miss provides the spark for equity rally

Indices are rallying on both sides of the Atlantic, with the FTSE 100 up 50 points as the session draws to a close. 

• Jobs miss proves a boon for risk assets
• Debate on Fed policy changes to cool after payrolls report
• 2021 continues on in its calm fashion

When repeated Fed messages about making no changes to monetary policy fail to calm market fears about tapering, a good miss on non-farms payroll day will do the trick. Today’s ‘huge miss’ on the headline NFP figure, and the downgrade to last month’s blowout figure, contributed to a general relaxation of nerves regarding any changes to Fed policy. Risk assets took off, the dollar fell, and gold built on its strong rally in yesterday’s session. In normal times a 200,000+ job print would be good news, but these are not normal times, and the high expectations preceding today’s number set investors up for disappointment, at least in terms of the continued economic rebound. Stocks have been in search of a catalyst to resume their move higher, and it looks like today’s number has provided the spark. It will certainly take the pressure off the Fed to discuss any changes in policy, at least for another month, and thus is likely to be taken as good news both on Wall Street and in the corridors of the Federal Reserve building. 

The bounce in equities certainly seems to have brought the recent bounce in the Vix to an end. As the fifth month of the year enters its second week, it looks increasingly plausible that 2021, far from being as volatile as its predecessor, could turn out to be one of the quieter years, similar perhaps to 2017, a notable snore-fest. Volatility, when it happens, is usually confined to individual stocks and sectors, with rotation between themes replacing the up/down swings in indices. Predictability in Fed policy helps this, and today’s non-farms report points towards an ongoing stasis in monetary policy likely to prove positive for risk assets.