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Tory Poll Lead Narrows Sharply - Video Update
31 May 2017
S&P 500 and NASDAQ break winning streak
31 May 2017
Sterling swings on polls - PM Bulletin
30 May 2017
Equities drift after long holiday weekend - AM Briefing
30 May 2017
Crude oil slumps on OPEC disappointment - AM Briefing
26 May 2017
OPEC disappoints while FOMC minutes provide cheer - Video Update
25 May 2017
OPEC expected to agree 9-month extension - AM Briefing
25 May 2017
Look-ahead to OPEC - Video Update
24 May 2017
Markets quiet ahead of FOMC minutes and OPEC - AM Briefing
24 May 2017
Crude oil update - OPEC meeting in focus - PM Bulletin
23 May 2017
Markets shrug off atrocity in Manchester - AM Briefing
23 May 2017
Equities mixed, but supported by oil
22 May 2017
Nerves steady after firmer close on Wall Street - AM Briefing
19 May 2017
Political fall-out continues to weigh on markets - Video Update
18 May 2017
Slide in European indices accelerates - AM Bulletin
18 May 2017
Trump’s woes hit markets - Video Update
17 May 2017
Trump’s woes lead to market wobble - AM Briefing
17 May 2017
EURUSD hits six-month high - PM Bulletin
16 May 2017
Crude oil extends rally - AM Briefing
16 May 2017
US inflation data and retail sales in focus - AM Briefing
12 May 2017
Crude oil recovers after “flash crash”- Video Update
11 May 2017
Crude oil soars while equities drift - AM Briefing
11 May 2017
Are investors too complacent? - Video Update
10 May 2017
Investors rattled after Trump fires FBI head - AM bulletin
10 May 2017
Crude oil’s “flash crash” leads to OPEC desperation - PM Bulletin
09 May 2017
Equities rally as oil steadies - AM Briefing
09 May 2017
Forex: Top Ten Tips for beginners - Trading Guides
08 May 2017
Markets little moved after Macron win - AM Briefing
08 May 2017
Payrolls in focus - AM Briefing
05 May 2017
NFP look-ahead - Video Update
04 May 2017
FOMC hints at rate hike in June - AM Briefing
04 May 2017
FOMC look-ahead - Video Update
03 May 2017
Apple disappoints on sales numbers - AM Briefing
03 May 2017
CFD Trading Tips - Trading Guides
02 May 2017
European traders return after May Day - AM Briefing
02 May 2017
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 Friday 05 May 2017

Payrolls in focus - AM Briefing



Early moves

·         Non-Farm Payrolls in focus

·         Speeches from Yellen and Fischer to follow

Last month’s Non-Farm Payroll report was a bit of a shocker showing job gains of just 98,000 on expectations of an increase of 174,000. Despite this, the 6-month rolling average still comes in at 176,000 and hasn’t dropped below 170,000 since 2013.

In current environment this average would need to fall below 150k to cause concern. In fact, with unemployment rate at 5% or below for 18 months (4.5% last month - lowest in nearly 10 years) it could be argued that the US is close to “full employment”. That means a sudden pick-up in average earnings could cause inflation to spike higher, forcing the Fed to tighten more aggressively than is currently being considered. However, net jobs gains have tended to come in low paid areas, such as hospitality, education and healthcare. Last month inflation (as measured by the headline PCE) dipped to 1.8% annualised, slightly below the Fed’s 2% target. It is well below target when excluding food and energy.

The Fed is currently forecasting a further two rate hikes of 25 basis points each over the rest of 2017. In addition, there’s talk of starting to reduce its $4.5 trillion balance sheet towards the end of this year. The market is currently pricing in just one more 25 basis point rate hike in 2017.

It’s difficult to see the Fed being thrown off its current tightening course by another poor payroll number. However, the fact that Wednesday night’s Fed statement was explicit in saying recent data weakness is “transitory” means there is an overall market risk should we get another disappointing number.

The consensus forecast for today’s payrolls is an increase of 194,000. Anything around here and up to 210k will probably be fairly market neutral, although it could provide the impetus for the Dow and S&P to make fresh record highs.

If we get something nearer the 150,000 mark then expect the yield on the 10-year Treasury to dip back below 2.30%, the dollar to retreat and maybe a relief bounce in precious metals, at least temporarily.

But we also have speeches from Janet Yellen and Stanley Fischer later this afternoon. These could prove to be more market-moving than the payroll number itself.

Stock Index Update

·         Energy stocks weigh on indices

·         But Fed meeting broadly positive

The major US stock indices spent most of the early part of yesterday’s session fluctuating between positive and negative territory. Energy stocks weighed on the indices as crude oil fell back to levels last seen at the end of November last year. This was when OPEC and other major oil producers agreed to output cuts. On the flip side, investors were hopeful that a new healthcare bill would pass through the House to repeal and replace Obamacare.

European stock indices ended higher yesterday boosted by corporate earnings. The banking sector was firmer first thing, helped by better-than-expected results from HSBC. Equities were also in demand following Emmanuel Macron’s performance in a head-to-head debate with Marine Le Pen. Polls suggested that the pro-European establishment candidate outshone Le Pen, setting himself up for a comfortable win in the French presidential election on Sunday.

On Wednesday night the US Federal Reserve indicated that it remains on course to tighten monetary policy further as early as next month. This helped to boost risk appetite as the Fed suggested that recent weakness in US economic data is “transitory”.

Commodities Update

·         Crude hits pre-output cut levels

·         Precious metals bounce after slump

There’s been no let-up in the sell-off in crude oil today following yesterday’s rout. The benchmark WTI contract ended close to 5% lower yesterday while Brent slumped below $50. Both contracts are trading at their lowest levels since mid-November last year, a fortnight before OPEC and other major producers agreed to their 1.8 million barrel per day output cut. Yesterday’s sell-off accelerated after Russia said that there’s been no decision to date on extending the production cut beyond June. So far the cut has failed to reduce global inventories which remain at record highs. The news followed on from a report showing that US crude production has risen for the 11th consecutive week. There’s also evidence that global oil demand is falling.

Precious metals had another truly dire trading session yesterday. Both metals were lower in early trade but suddenly slumped soon after the US open. Some newswires were blaming a rally in the US dollar for the selloff, but that was plainly ridiculous. As gold and silver made most of their losses the dollar was sharply lower against the euro, British pound and Swiss franc and virtually unchanged against the Japanese yen and Canadian dollar. Instead, the moves were largely technical as indiscriminate sell orders in the futures market took prices below stop levels which only added to the downside pressure. Gold and silver bounced off their lows later in the session and were a touch firmer early on Friday. It could be that the relentless sell-off in oil is beginning to encourage a move to safe havens.

Forex Update

·         Euro firms ahead of French election

·         Dollar steady after Fed meeting

The euro was yesterday’s prime focus for traders yesterday. The single currency rallied against all the majors following the last candidate debate in the French presidential election. Polls taken after Wednesday night’s head-to-head suggested that the pro-Europe establishment contender, Emmanuel Macron, had come off best. M Macron continues to hold a comfortable poll lead over the anti-European candidate Marine Le Pen as this Sunday’s election approaches.

Also on Wednesday, the US dollar got a lift following the release of the Federal Reserve’s latest statement on monetary policy. The US central bank kept rates unchanged as expected and was viewed as being fairly hawkish overall. This was because the Fed wrote off recent weakness in economic data (particularly last week’s GDP release) as “transitory”. Consequently, the Fed remains on track to hike rates by an additional 50 basis points this year. There’s also the possibility that the central bank will begin reducing its balance sheet before year-end, although this wasn’t mentioned in Wednesday’s statement.

Upcoming events

Today’s most significant economic data release is US Non-Farm Payrolls. But we also have the Unemployment Rate and Average Hourly Earnings. Later in the day we have speeches from Fed Chair Janet Yellen, Fed Vice-Chair Stanley Fischer and FOMC voting member Charles Evans.  


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Posted by David Morrison

Category: AM Bulletin

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