US jobs data: Friday’s US job report will decide next market move: Manish Singh

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The CIO of Crossbridge Capital says US may need to invest money on projects to further its foreign policy and check China.

Dow is up almost 200 points. One day we see a move in the positive direction while on the other hand there is nervousness among investors. How are people like you navigating through such high volatility? Are our markets really ignoring the kind of permanent disruptions that we are seeing in the economy?

As I have said in the past, in terms of price action, yes we have seen a lot of volatility, but one thing has been constant. You are seeing S&P hugging that 3,000-3,100 levels, which is what I have been saying for the past few weeks now. For any massive upside, there has to be a much bigger reopening and amid doubts about reopening we suddenly see the market take a back seat. However, it is not as negative as people make it out to be, because if you look at the total number of cases in the US, it is nowhere near the peak you saw in January and February. Even taking into account New York, where the daily number of cases was 18,000 at one stage in February and March, we are now at 900 or just near 1,000.

So the rise in the number of cases looks bad, but if you look at the second derivative of how quickly it is increasing, that is not bad at all. I do not mean to say one has to be complacent, but one has to bear in mind that it is much more about the virus and much more about how to protect ourselves. People are going to do that. So yes, there will be some slowdown in reopening and rethinking and re-planning, but the reopening is going to continue because that is the only way out. People have to put safety measures in place and carry on. One cannot be in lockdown forever. So the market will look at that. Market will also look at the job report this Friday. Remember, May jobs report was a major surprise, where everyone thought 7 million job losses, but actually we got 3 million. So that difference was 10 million, which is a staggering difference between expectation and reality. If we have a good jobs report this Friday, you will see the market rally once again. So the fear of missing out on the rally is real, which is why the bears are not going to have a big standing and one cannot be overly bearish.

We did see a very good month in May and a stupendous month of June as well. Are you expecting this rally to continue in July?

I am positive on the market. But it is difficult to say how far ahead it can go. This is a first test of reopening we are seeing and there are some questions. If you look at California, the new cases have risen after bars and restaurants reopened. Also look at the positive side; a lot of these cases are among young people. They are not vulnerable as we know in terms of number of deaths, because the majority of the deaths has been in the vulnerable older people or people with preconditions. So yes, cases may increase. But if the number of deaths does not increase at the same level — and I sincerely hope it will not from what we have seen so far — then these things will get priced in. People will say okay the cases are increasing, but then it is not at the same bad pace. Things can reopen with a bit more caution. If I take that into account where the sentiments are, I do think that you will have positive month ahead for the markets.

I also want to pick your brains on what is happening on the geopolitical side. On one side, there is a constant tiff between the US and China, there have been talks about flip-flops on what happens to the trade deal as well. And if you look at not just China, other nations as well, now Iran says it is going to issue an arrest warrant for Trump over killing of their top commander Qasem Soleimani. The relationship between the US and Germany has continuously declined over the past couple of days. There are skirmishes that we are seeing across the board in terms of where things are headed in the relationships that US had had as the supreme power of the world. Having said that, do you believe some of these worsening of relationships are just something that we are seeing ahead of the November elections or do you think Covid has presented a new case and the geopolitical situation from now on will be determined by various nations and their response to Covid-19 and, of course, the other related issues?
That is a very good question and a good point. If you look at it, these tensions pre-existed. What Covid has done is it has brought the stark contrast to the fore: if your debt keeps on increasing and your GDP is not going to grow, there is high unemployment and there is a huge reduction in trade. Look at how badly the emerging markets are doing in terms of containing their own Covid cases. Look at India, the curve has not flattened yet, it is still rising. So it does really bring everything into contrast. To your point about the US and Germany, that tension has been there for some time and growing. It’s the same between the US and China. The US is trying to put pressure even on Japanese companies to not sell the project they have in the UK. Hitachi has a nuclear power plant in the UK, which they do not want them to sell to a Chinese company. Now I do not know how much pressure US can put on that, because US will have to put money if they want to stop things from happening. But can it do that? Can the US just go around investing money on projects to further its foreign policy? Perhaps, it should try, because that is what China has done. But these are geopolitical tensions, which have always existed.

What one has to bear in mind is what it does to GDP growth and what it does to global trade. So long as that continues then the incidence may shift from one power to the other, but every side has interest in trading, because America has things to sell, China has things to sell. Despite people fighting with each other, companies are going to continue to do business. So US companies are still continuing to do business in China, and they have heavy reliance on many aspects. So unless there is a complete reduction in business from the top level, I do not think one should be concerned. Does it have anything to do with the US election? Absolutely. I mean look at the back foot the Trump is on. It is definitely going to be that as well.

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