Non-Farm Payrolls ... one more thing to worry about

Discussion in 'Market Commentary' started by SimonDenham, Jul 8, 2016.

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  1. SimonDenham

    SimonDenham Simon Denham CEO Mercor Index Staff Member

    As if there was not enough to worry about already, today sees the US Non-Farm Payroll number which readers will know has grown over the years to be the most watched number of the month. Last month’s release was a sad disappointment to the market and dealt a major blow to Fed hopes of a continuation of the tightening plan (or steps) that had been in place last December.

    Back then we had been looking at ‘maybe’ 1% over 2016. Then in January the stock market falls pushed this back to ‘possibly’ half a percent until the NFP last month and the Brexit vote knocked even this likelihood on the head. The curve on the Eurodollar Futures is showing that the market ‘expects’ pretty much nothing until 2018/19 of course there is some risk built into the curve with 3mth Libor rates in September 2018 currently at 0.9375% (current 3mth Libor is 0.66%). But that is all it is… ‘a risk premium’… just in case the world economic situation improves.

    The NFP is expected to come in at around 175k which is up from last month’s expectation of 160k (it actually came in at 38k) but in the great scheme of things not a particularly strong expectation.

    Every time we come to the NFP I start by writing that the market is likely to be quiet up until the release but for the last few months the opposite has been the case. Dealing this morning seem to be reasonably peaceful though so I shall stick my neck out once again and say… “as we have the NFP at 13.30 it is likely that all we will see is position flattening as short term traders look to exit before what is effectively just a toss of the coin”.

    Even the effect of number itself is a difficult to call as markets can focus on either a weakening/strengthening economy or on the impact for interest rates both of which are mutually exclusive.

    My gut feeling is that the European markets look oversold and the FTSE looks over bought.

    Economic Data

    Yesterday saw a few minor employment numbers out of the US which came in better than expected (maybe a signal for the NFP?) and an array of European and UK data which was generally bad for the EU and good for the UK !

    Of course all of that was the world before the vote .. indeed the data was for May and even the next month’s numbers may be reasonable as well.

    Today we have already seen the export numbers for Germany which were slightly lower than expected and industrial output from France came in slightly off.

    As already mentioned all eyes will be on the screens at 13.30 for the NFP.

    Indices

    FTSE

    Having studied the sudden drop and just as sudden recovery of Wednesday the Market seems in no mood to really go anywhere today and we are just a couple of points from the close yesterday afternoon. The twin influences of the weak domestic stocks and the strong foreign earners seems to have battled itself to a standstill just for the time being but at some point the post Brexit winners and losers will probably start to close the gap a bit.

    Support is at 6485/95 and 6440/50 then 6370/80

    Resistance is at 6620/30 then 6675/85 and 6745/55

    DAX

    Unlike the FTSE the Dax is still struggling, we remain around 400 points off the bounce back highs and we are still not seeing much in the way of buying at the moment. Morgan has come out with a buy signal for European stocks which may help today and at some point investors may decide that there is good value to be had especially when compared to secured debt (bonds).

    Support is at 9420/30, 9370/80 and 9200/10

    Resistance is at 9665/75, 9805/15 then 9840/50 and 9945/55

    Dow

    Another day another attempt at the 18000 level? Of course the NFP may get in the way but the Dow is once again peering at the ground between 17900 and 18300 which has been the death of so many bull moves over the past few years. Either we will finally break through into the sunny uplands or will reject the level once more and back we will go.

    I have absolutely no idea which is likely to gain the medium term upper hand but it is fun to watch.

    Support at 17895/05, 17780/90, 17730/40 and 17610/20

    Resistance is at 18050/60 18150/60 then 18300/20

    Currencies

    Euro

    The Euro remains at the same levels as the last few days. As mentioned before the cross seems reasonably happy in this region and it is tough to see why it should fall much further until there is some real information justifying such a move. The mid 1.1100’s are building up resistance as well so we can maybe expect little action in the short term.

    Support is at 1.1005/15 then 1.0970/80 and 1.0890/00

    Resistance is at 1.1165/75 and 1.1245/50 then 1.1315/25

    Sterling

    We saw an attempt to take the Pound back above 1.3000 yesterday and the move was looking quite solid until the afternoon when the US markets took us down to the lows again. The market continues to drift overall but there seems to be a solid stream of buying as traders try to pick a bottom. This is causing minor moves higher followed by swift rejections but the longer we can stay at the current levels the better the chance that stability can be achieved.

    Support is at 1.2930/40, then 1.2780/90 and 1.2650/60

    Resistance is at 1.3145/55, 1.3230/40 then 1.3345/55 and 1.3570/80

    Gold

    The resistance we mentioned at 1372/74 actually held over the last few days and Gold has drifted back towards the 1355 support level. The post Brexit move has held on even though the dollar has also appreciated considerably and this seems to be encouraging the longs to hold on for more.


    Support at 1355/57 1346/48, 1320/22, 1312/14

    Resistance is at 1372/74 and 1386/88

    Oil

    Oil has slipped further towards $46.80 which represents a near 10% fall in the price from the highs almost matching the 11% drop in sterling’s value versus the dollar! So arguments about rising energy prices in the UK may be (for the time being) a little premature.

    Support is at 46.60/70 and 45.35/45 then 44.60/75
    Resistance is at 48.25/35 49.70/80 and 51.70/80
     

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