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AM Bulletin: Markets rise for the second day ; back to pre-referendum levels, sterling still weak
30 Jun 2016
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29 Jun 2016
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28 Jun 2016
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24 Jun 2016
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23 Jun 2016
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23 Jun 2016
Spread Betting Tips
22 Jun 2016
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22 Jun 2016
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21 Jun 2016
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21 Jun 2016
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21 Jun 2016
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20 Jun 2016
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17 Jun 2016
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17 Jun 2016
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17 Jun 2016
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17 Jun 2016
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16 Jun 2016
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16 Jun 2016
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15 Jun 2016
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15 Jun 2016
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14 Jun 2016
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14 Jun 2016
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10 Jun 2016
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09 Jun 2016
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08 Jun 2016
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07 Jun 2016
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06 Jun 2016
Weekly Bulletin: Rate hike? What rate hike?
06 Jun 2016
PM Bulletin: A dismal Non-Farm Payroll number
03 Jun 2016
AM Bulletin: Non-Farm Payroll Friday
03 Jun 2016
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02 Jun 2016
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02 Jun 2016
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01 Jun 2016
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01 Jun 2016
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 Friday 03 June 2016

AM Bulletin: Non-Farm Payroll Friday



Indices Update  

Early European trade has been relatively subdued so far as investors await this afternoon’s US Non-Farm Payroll release. European equities are a touch firmer as they respond to a late pick-up on Wall Street.  

Yesterday’s ADP Employment Change came in at 173,000 - in line with expectations. On top of this, the previous release was revised up by 10,000. This appears to bode well for this afternoon’s Non-Farm Payroll (NFP) numbers. The ADP report is viewed as a “heads-up” on the likely direction of the NFP. However, the NFP tends to be more volatile. That is why last month’s unexpected drop in the ADP number was such a surprise, particularly as it foreshadowed a similar downside miss in the NFP.   

The consensus expectation for today’s payroll is for an increase of 160,000 jobs in May – unchanged on April’s number. But interpreting the headline release could be complicated by a strike by workers at Verizon which will affect last month’s data. By some estimates this could reduce the headline print by anything between twenty and thirty five thousand.  

This should be factored in to expectations. However, a big downside miss may cause initial algo-driven volatility. But ultimately a bad number could be explained away by the strike. Consequently it is unlikely to persuade investors that the Fed is ready to give up on a summer hike.   

So while a number above 160,000 keeps a summer rate hike firmly on the agenda, anything around 130,000 may not be bad enough to fully discount monetary tightening. Yet again, uncertainty will continue to dog the markets.    

Yesterday brought a mixed open for European equities and US stock index futures, and the session was notable for its choppy trade. Investors had a lot to contend with, including the biannual OPEC meeting in Vienna, the European Central Bank (ECB) rate decision and press conference from Mario Draghi, US ADP Employment Change (a precursor to this afternoon’s Non-Farm Payroll release) and US Crude Oil Inventories. There were a couple of other speeches from central bankers, but they got lost in the general market hubbub.  

Crude oil was weaker ahead of the OPEC meeting and that kept stock markets in check. The yen was firmer for a third day in a row and that also weighed on equities.     

This week’s slew of Manufacturing PMIs from around the world has been something of a mixed bag. China’s numbers were generally considered a disappointment while the Euro zone’s was flat. However, the numbers from the UK and US were both better-than-expected and stronger than the prior months’ data releases.     

There were no surprises from the ECB which kept rates on hold. The central bank modestly upgraded its growth and inflation forecasts for this year, but warned of global risks and the danger of the UK voting to leave the Euro zone.    

The FTSE 100 index closed at 6,185.6 down 6.3 points on the day, or 0.1%   

The German DAX rose 3.6 points or 0.03% to end the day at 10,208   

The US30 closed up 48.9 points to finish at 17,838.6. The S&P 500 rose 0.3% to close at 2,105.3 while the Nasdaq 100 gained 0.3% to close at 4,531.4   

One of the biggest venture capital investments ever was announced late on Wednesday. Saudi Arabia's sovereign wealth fund is investing $3.5 billion in Uber. This values the ride-sharing company at $62.5 billion and helps the Saudi wealth fund diversify assets. Uber has now raised around $11 billion which will be used by the company to expand around the world. What this means in practice is that Uber will look to undercut competition by running at a loss and drive it out of business – a similar modus operandi as Amazon (AMZN). 

Commodities Update 

Crude oil pushed higher yesterday ahead of the OPEC meeting in Vienna. The meeting was largely viewed as being a non-event given the failed attempt by OPEC/non-OPEC producers to agree to an output freeze at the Doha gathering back in April. In addition, the pressure to support the oil price has diminished to a great extent given that crude has nearly doubled since the beginning of the year. Nevertheless, a desperate attempt was made by some OPEC members to boost interest in the meeting by suggesting that a fresh plan to freeze production may be agreed. But even if this had been the case, it was doubtful how this would impact prices over the medium term as it would exclude major non-OPEC producers such as Russia and the US.      

Crude began to slip as the trading session progressed. This followed comments from an OPEC delegate who said that the cartel would not be changing its output policy and was not planning to reintroduce a production ceiling. This was confirmed later in the session as the OPEC meeting came to a close. However, oil’s losses were limited to some extent as members of the cartel (including Saudi Arabia) said that they would not be flooding the market with extra crude. But then oil producers would be shooting themselves in the foot if they announced that they were getting ready to dump fresh supply on the market as this would see prices crater.    

Yesterday gold and silver traded in a similar fashion to Wednesday. That is, prices were firmer in early trade (supported in part by dollar weakness) then drifted lower later in the session. Once again, the two precious metals moved inversely with the US dollar. While the greenback fell against both the yen and British pound, it managed to push higher against the euro. Earlier in the day the European Central Bank (ECB) left rates unchanged as expected. Later on, the single currency swung about wildly as the text of ECB President Mario Draghi’s prepared comments was released. But then it began to trend lower. During his press conference Mr Draghi said that inflation rates were likely to remain very low or even negative over the coming months, although he said he expected inflation to pick up in the second half of 2016.   

Gold was unable to break back above $1,220 – a level that had previously offered a good level of support. But it spent the day in a relatively narrow range and managed to hold above $1,210 for most of the session. Silver fell back below $16. However, selling momentum has failed to pick up below this level which suggests that it is turning into a decent support level.

Forex Update  

Once again yesterday’s big mover was the Japanese yen. For the third successive day it rallied against the majors. The USDJPY broke below 109.00 to hit its lowest level since 16th May. Meanwhile, the EURJPY hit its lowest level in over three years, scything through support around the 122.00 area. The yen has been lifted by a number of factors: there was disappointment that Japan’s Prime Minister Shinzo Abe wasn’t explicit enough on Wednesday when he announced additional fiscal stimulus, plus the fact that he postponed the government’s proposed sales tax increase which suggested a failure of “Abenomics”. He was also somewhat downbeat in his comments when he expressed concerns over the outlook for China and said that the global economy faced big risks. The currency also got a lift as investors became more risk-averse and bought back yen previously borrowed to finance riskier trades. On top of all this, Bank of Japan (BOJ) board member Takehiro Sato said on Thursday he was opposed to deepening negative interest rates. He also said that “Japan’s economy, with its potential growth rate of nearly 0%, is so fragile as to be liable to post negative growth even because of trivial external factors such as weather conditions.”

Upcoming events   

Today’s main event is the latest US Non-Farm Payroll release due out at 13:30 BST. We will also see the US Unemployment Rate, Average Hourly Earnings, Trade Balance, ISM Non-Manufacturing PMI and Factory Orders. Earlier in the day we have Services PMIs from across the Euro zone and UK together with Euro zone Retail Sales. 

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.


Posted by David Morrison

Category: AM Bulletin

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