The sentiment rollercoaster continues. Trade talks continue to be the catalyst. Stocks were surging through most of the day yesterday and trade rhetoric eased as the US said the door was open to negotiation, then last night Trump set the ball rolling once more, ordering his administration to consider tariffs on up to $100bln of Chinese imports to the US, as he cited their retaliation as “unfair”. So like we highlighted yesterday, everything is fine until it’s not. Markets should get use to this volatility and once again risk management is key because sentiment can change in a heartbeat.
The pound struggled through much of yesterday. We warned weaker PMI prints could weigh but with the services sector showing a considerable slowdown and the composite reading missing the mark by some way, indications suggest Q1 GDP growth will fall below .3% vs +.4% as guided in December. Not exactly rate hike performance. The USD continued its press higher, the USD index now rising into key resistance and a break above this resistance could cement the greenback bottoming out. Needless to say today’s NFP print will play its part in deciding that outcome. It was a mixed day for the euro, under heavy pressure from USD, it outperformed the weaker pound, was flat vs the JPY and just moderately weaker elsewhere. Thus far this morning the stocks are in the red, major European indices down between .5% and 1%, the Euro is weaker and the USD firmer with GBP also under some pressure.
The beast from the east came back to bite the UK, poor weather being blamed for the under-performance in PMI’s and this knocking over approach .15% off Q1 GDP growth (target revised down from .43% to .28%. The recent rally in GBP has been based heavily on the premise that the BOE would look to raise interest rates, however we may see the MPC voters shift their stance should we see a slowdown in GDP. GBPUSD dropped down below 1.4000 yesterday, we saw an attempted recovery overnight but that failed to hold and we may well see a drop back below 1.3900 should NFP’s support a stronger USD. EURGBP continues to be in range, .8710 holding moves lower for now, light resistance at .8750, with larger sellers above that towards .8780/90 area likely to hold any press higher for now. There’s very little to excite from this morning’s European calendar so risk trends and technical levels will likely dictate trade.
The greenback is poised to strike higher, it just needs a little push and slightly firmer sentiment to really begin to rally. Today’s NFP is always a market shaker, and may be just the catalyst. However in recent prints it’s been less about the headline figure and all about wage growth. There is no denying the US labour market is in a solid place, unemployment is expected to be at 4%, down from 4.1%. I won’t get in to the argument about the real unemployment figures in the US, those that have removed themselves from seeking employment and weakening participation rates. The headline figure is expected to show 185k jobs added to the economy through March, and following a firm ADP on Wednesday’s expectations are likely aiming a little higher now. To be honest, any print between 150k and 250k is unlikely to shift the USD either way, however should we see wage growth miss target then a move will be likely. Wage growth above 2.7% will favour a stronger USD, while anything weaker will see some selling in the buck. EURUSD broke through the 100 day EMA yesterday but the key level we’re still watching in 1.2220 area. We saw it tested yesterday but it failed to give way despite a brief look under (lows at 1.2215 overnight). One gets the feeling the market is waiting for NFP’s before deciding to press it lower.