Investors were caught off guard yesterday by US treasury secretary Yellen when she mentioned that it was time to consider tapering of QE in the US just a week after FED chairman Powell announced that there would be no changes to monetary policy and that the central bank was not considering tapering. US stocks were some of the hardest hit with the S&P500 dropping 0.67% while the Nasdaq tech index dropped 1.88% while the impact was also felt in Europe as most indices pulled back following the hawkish comments, with the German Dax falling to the lowest level since late March. Some investors pointed to the old saying "Sell in May and go away" or the issues regarding quarterly results of some American companies and their ability to sustain growth in the future. However, after Janet Yellen backtracked from her comments, indices were able to make a significant recovery which points to a situation of clear uncertainty where markets are looking to react to any sign of upcoming change in monetary policy from central banks, even if they are not followed by actions. It would not surprise me to see more twists and turns in the markets of a similar nature throughout the lower liquidity summer months.
ADP employment report ahead of NFP on Friday
As investors await Friday’s US Non Farm Payroll report which is expected to show an increase of 990,000 after an increase of 916,000 in the previous month, they are looking at today’s ADP employment report to give an indication of what to expect from Friday’s report. The ADP report is expected to show an increase in employment of 810,000 and while this is slightly below what is expected from the NFP report, it remains a positive sign of economic recovery as the country eases lockdown measures and as vaccination efforts continue at a very rapid pace. US services PMI data is also expected today, and while it is not considered as important, it remains a key measure used to track the post pandemic recovery of the economy.
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