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Market awaits Trump, and Fed reaction
28 Feb 2017
Markets on hold ahead of Trump speech to Congress - AM Briefing
28 Feb 2017
Fibonacci Retracement - an introduction - Trading Guides
27 Feb 2017
Investors shrug off concerns ahead of Trump speech - AM Briefing
27 Feb 2017
Equities drifting lower ahead of weekend - AM Briefing
24 Feb 2017
Dollar sells off after FOMC minutes - Video Update
23 Feb 2017
FOMC minutes send dollar lower - AM Briefing
23 Feb 2017
Crude oil pushes up against resistance - Video Update
22 Feb 2017
FOMC minutes in focus - AM Briefing
22 Feb 2017
Gold pulls back from resistance - PM Bulletin
21 Feb 2017
US traders return after market holiday - AM Briefing
21 Feb 2017
Identifying market tops, or the trend is your friend - until it isn’t
20 Feb 2017
Kraft Heinz pulls Unilever bid - AM Briefing
20 Feb 2017
Major indices drifting lower as weekend approaches - AM Briefing
17 Feb 2017
US Indices hit fresh record highs
16 Feb 2017
Trump tax promise continues to drive risk appetite - AM Bulletin
16 Feb 2017
Yellen testifies in Washington
15 Feb 2017
Yellen testimony helps lift sentiment - AM Bulletin
15 Feb 2017
Silver hovers around resistance at $18
14 Feb 2017
Focus turns to Yellen’s testimony in Washington
14 Feb 2017
An introduction to the Relative Strength Index - Trading Guides
13 Feb 2017
Equity rally continues - AM Briefing
13 Feb 2017
Trump tax talk boosts risk appetite - AM Briefing
10 Feb 2017
US dollar drivers - Video Update
09 Feb 2017
Recovery in crude lifts equities AM Briefing
09 Feb 2017
Crude volatility picking up - Video Update
08 Feb 2017
Crude lower as inventories soar - AM Briefing
08 Feb 2017
Politics set to drive FX - PM Bulletin
07 Feb 2017
Major indices drift in featureless trade - AM Briefing
07 Feb 2017
MACD - an overview -Trading Guide
06 Feb 2017
European equities drift in quiet trade - AM Briefing
06 Feb 2017
Non-Farm Payrolls in focus - AM Briefing
03 Feb 2017
Non-Farm Payroll look-ahead - Video Update
02 Feb 2017
BoE meeting in focus - AM Briefing
02 Feb 2017
FOMC meeting tonight - Video Update
01 Feb 2017
Markets steady ahead of Fed meeting - AM Briefing
01 Feb 2017
Expand January <span class='blogcount'>(39)</span>January (39)
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 Friday 03 February 2017

Non-Farm Payrolls in focus - AM Briefing



Early moves

·         Quiet start to European trade

·         Non-Farm Payrolls in focus

It’s been an uneventful start to the morning’s trade although all the European indices and most of the US stock index futures were trading in positive territory first thing. China’s Shanghai Composite reopened after Golden Week and posted a modest loss of 18 points, or 0.6%. Last night saw the Wall Street majors end little-changed, summing up a session when “buy the dips; sell the rips” worked perfectly.

Non-Farm Payrolls for January are released later today. The consensus expectation is for an increase of around 170,000 which would be a solid improvement on December’s 156,000. If the number comes in as expected it would keep the 6-month average above 160k which is fine as far as most analysts, investors and traders are concerned.

Wednesday’s ADP private sector survey showed an increase of 246,000 jobs, way above both the 151,000 from the prior month and the 165,000 expected.  ADP is a fairly poor predictor when it comes to the government’s NFP number, but it can often give a “heads-up” to an upside, or downside, surprise. Consequently, we could see something well above 170,000 later today. If so, then expect a bounce in the dollar. However, even a number over 200,000 may not be enough to halt the current pull-back. Partly this is due to the Trump administration talking the dollar down. But also it’s a response to the Fed backing away from its inflation call made in December. This became apparent after the FOMC statement on Wednesday which was ambivalent over inflation. Back in December Janet Yellen had suggested that Trump’s fiscal stimulus was unnecessary as the Fed had, or was close to hitting its inflation and unemployment targets.

Stock Index Update

·         Mixed close for global indices

·         BoE raises growth forecasts

There was another mixed close for European stock indices yesterday. The German DAX ended lower weighed down by Deutsche Bank which ended over 5% down after posting a €1.9 billion loss in the fourth quarter. The UK’s FTSE100 ended higher thanks mainly to a sell-off in sterling. Cable hit a seven week high ahead of the midday release but subsequently fell sharply.

The Bank of England’s Monetary Policy Committee released its latest rate decision along with its quarterly inflation report yesterday. The Bank kept its interest rate and asset purchase facility unchanged at 0.25% and £435 billion respectively. It also raised its 2017 growth forecast to 2% (from 1.4% in November) and forecast inflation as measured by CPI to 2.7% this year (well above its 2% target) before it pulls back. Sterling hit a seven week

Investors were also digesting details of the US Federal Reserve’s first meeting since December when it hiked rates for only the second time in 10 years. The Fed kept rates unchanged, as expected. However, the accompanying statement from the FOMC was viewed as dovish as it toned down its inflation expectations. This was something of a surprise given the concerns raised by Janet Yellen back in December over Trump’s fiscal stimulus and the inflationary consequences.

Commodities Update

·         WTI and Brent near top of recent ranges

·         Precious metals slide as dollar firms

Crude oil spent most of yesterday’s session trading in a narrow range. In fact, WTI has hovered between $52 and $54 for the last three weeks. Brent has spent most of this period stuck in a range between $54 and $57 - a slightly wider trading band, but a frustrating one nevertheless.

The story on crude is becoming familiar. Any news which suggests that the OPEC/non-OPEC production cut agreement is working well leads to a bounce in oil prices. On the flip side, anything which points to increased US production sees crude sell off. This week crude pulled back from its best levels following the release of US crude oil inventory numbers. Both the American Petroleum Institute (API) and the Energy Information Administration (EIA) reported a sharp build in stockpiles of crude oil, gasoline and distillates. In addition the oil and gas rig count continues to rise. Baker Hughes reported that the number of active rigs is now at its highest level since November 2015. But crude is currently near the upper end of its trading ranges as it appears that OPEC/non-OPEC producers are delivering on promised output cuts.

Gold and silver shot higher on Wednesday straight after the Federal Reserve released its latest FOMC statement. This was considered more dovish than expected as the Fed appeared to row back on recent inflation concerns. Back in December Fed Chair Janet Yellen suggested that Donald Trump’s fiscal stimulus may be unnecessary as the Fed’s unemployment and inflation targets were close to being met. Now the Fed doesn’t seem so bothered. The dollar fell sharply while gold and silver rallied. However, yesterday saw both metals pull back from their best levels while the dollar bounced. Gold had broken above resistance at the $1,220 level but was unable to hold above here on a closing basis. As usual, much now depends on where the dollar goes from here. If it looks as if its corrective pull-back since the start of this year is over, then precious metals may struggle to make further headway, over the short-term at least.

Forex Update

·         Sterling falls after BoE inflation report

·         Dollar traders focus on Non-Farms

The Bank of England kept its interest rate and asset purchase facility unchanged at 0.25% and £435 billion respectively. It also raised its 2017 growth forecast to 2% (from 1.4% in November) and forecast inflation as measured by CPI to come in around 2.7% this year, hit 2.8% in the second quarter of 2018 before pulling back towards the Bank’s 2% target.

Ahead of the meeting the GBPUSD topped 1.2700 for the first time since mid-December. However, it subsequently fell sharply as traders scrutinised the Bank’s inflation report.

Just over a fortnight ago cable briefly dipped below 1.2000. This would have been its lowest level since the mid-eighties if it hadn’t been for the still unexplained flash crash in early October last year. Since then the GBPUSD has rallied the best part of 6%. Much of this move is down to the pull-back in the US dollar. However, there’s also a feeling that the worst is over for sterling. This comes amid greater certainty over the UK’s political position as it approaches Brexit and triggering Article 50. But it is also a function of a better outlook for UK growth along with a pick-up in inflation expectations.

The dollar fell sharply on Wednesday evening after the Fed signalled it was in no hurry to hike rates further. However, it bounced back yesterday and as far as today’s trade is concerned, much now depends on the strength of the Non-Farm Payroll data. If we get a strong number (180,000 or higher) then expect the dollar to firm further. But it’s worth bearing in mind that the Trump Administration is doing its best to talk down the greenback even as it promises policies which should send it higher.

Upcoming events

Today’s significant economic data releases and events include Spanish, Italian, French, German, Euro zone and UK Services PMIs. We also have Euro zone Retail Sales. From the US we have Non-Farm Payrolls, the Unemployment Rate, Average Hourly Earnings, ISM Non-Manufacturing PMI and Factory Orders.


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Posted by David Morrison

Category: AM Bulletin

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