A forecasting error that skyrocketed financial markets | Flow Traders Investment Competition | Week 32

Stocks escalated higher on Friday as the May jobs report for the US represented one of the most significant forecasting errors ever registered for a single data release. Economists and analysts were evenly wrong on the direction of the move, as all forecasted deterioration when the reported numbers indicated a steady improvement. This result capped a big week for the major indices, with the Dow Jones rising 6.8%, the S&P 500 surging 4.9%, and the Nasdaq increasing 3.4%. In the same way, the AEX index jumped 7.0% as well as the Eurostoxx 50 index, which rallied 11% last week. In contrast, the VIX fell 10.9%. As a result of the positive outcomes, the Nasdaq regained its all-time high and has earned 9.3% year-to-date (YTD), while the Dow Jones is 5% lower. 

In Europe, the ECB approved a stimulus package that surpassed forecasts, nearly doubling its Pandemic Emergency Purchase Plan to € 1.35 Trn. The ECB also extended the program to at least June 2021, leaving it on track to buy a record € 1.4 Trn. of assets this year across all its stimulus programs. That would increase its asset portfolio to more than € 4 Trn. (around 33% of Eurozone GDP).

Oil ministers from the OPEC organization, as well as other producers led by Russia, met by video conference on Saturday and reached an agreement to continue cutting 9.7 million barrels a day (about 10% of global output) through July. The recognition that the cuts need to stay for a month or perhaps longer shows that despite the recent surge in oil prices, the large producers remain worried that the oil market could fall apart again.

In the US, the Trump administration opened a “Section 301” investigation into taxes on digital commerce that would affect revenues booked by tech giants like Facebook, Google, and Amazon. The move could ultimately lead to punitive tariffs and heighten the chances of another global trade dispute.

Furthermore, the nonfarm payrolls report on Friday showed a surprising increase of 2.5 million jobs in May (a loss of 8 million jobs was expected) and an unemployment rate of 13.3% (April: 14.7%). 

Among the most important things to watch next week, the Federal Open Market Committee on June 9-10 will be in the spotlight. The Federal Reserve Chairman Jerome Powell is expected to face questions on the central bank’s role in the economic recovery and what tools are still available to use. The weekly jobless claims numbers due out on June 11 will be crucial for sentiment after May’s employment report showed a surprising record gain.

The Flow Traders Investment Competition was also exposed to this favorable context, and almost all the teams registered gains. Clear Water Group managed to maintain first place with a significant M2 of 16.77%. Capital Phi Investments made the most significant jump this week, with a remarkable upward move of 11 standings, positioning in the second place (M2: 11.57%). Omega Investments stayed in third place with an M2 of 11.49%. Mayfair Investors had less of a good week and fell 13 positions compared to last week.

Gino Beteta