US and European stock markets received an early boost from what was seen as dovish comments from ECB President Draghi. European indices finished their day with the FTSE up 1.8% and the Dax up 2.2%, while EUR turned decidedly downward. Into the US afternoon, however, stocks and crude oil have been drifting back as their rebounds run out of steam and traders sat on their hands unwilling to take on new commitments ahead of tomorrow’s employment reports. Although dovish on the surface, the ECB decision to increase the amount it can buy of any one issue is more logistical than stimulative. Since inception, the ECB QE program has been running behind target. At first, I thought they were leaving room in case Greece imploded but today’s decision confirms the long running rumours that it was having trouble finding enough bonds to buy. Comments about standing ready to increase stimulus if growth slows or inflation falls aren’t really a surprise revelation either. USD has been running in the middle of the pack among currencies indicating that nobody has changed their minds on expectations of whether the Fed may start to raise interest rates later this month based on yesterday’s ADP payrolls or today’s service PMI figures. Defensives Gold and CHF are down slightly while JPY is up slightly indicating that trader confidence seems to be generally improving and capital continues to flow back out into risk markets. This could all change tomorrow with the release of North American employment reports. Starting with US nonfarm payrolls, the street is expecting employment to basically hold steady with a 218K increase. Earlier this week, ADP payrolls were basically steady near 190K. Including a downward revision to the previous month, ADP payrolls were up 13K over the previous month. Based on this, I am going to guess above street at 230K. In recent years there has been a sweet spot of 200-250K for US payrolls not too weak to impact corporate earnings and not too strong to force the Fed to tighten sooner. With the Fed on a trajectory to raise interest rates this year, I think the street could take the numbers as follows: 250K+ September liftoff, 200-250K September or October, 150-200K October or December, below 150K push off to 2016. A higher number could see USD rally, a lower number could see USD decline. Average hourly earnings may also attract attention as an indicator of inflation pressures. Recently it has been running above 2.0%, and another reading above that level could be seen as keeping the Fed on track for September. A read between 1.5% and 2.0% would suggest possibly an October or December liftoff. Below 1.5% would suggest a real weakening that could delay liftoff to 2016. The loonie has been bouncing around all week with traders trying to figure out whether Canada as a whole or just the energy sector is in a recession and the implications of that for CAD. Friday’s Canada Labour Force Survey may spark another round of action in the loonie and indicate if CADUSD can hold the 75 cent level or not. The street is expecting Canada jobs to fall 5K after a 6K increase last month. I’m thinking oilpatch layoffs aren’t done yet but today’s positive export figures indicate the benefits of the lower loonie for other sectors are starting to take hold. So I think overall jobs will be flat with full time bouncing back a bit and part-time slipping a bit. Canadian markets may also be active through the rest of the morning with the Ivey PMI set to indicate if the economy has started to turn around this summer or not. Asia Pacific markets may find themselves steady today as traders await the FOMC news. Australia stocks and AUD could attract attention as they try to stabilize from yesterday’s soft retail sales driven declines. Corporate News There have been no major corporate announcements after the US close today. Economic News Significant announcements released overnight include: Sweden interest rate street (0.35%) ECB Greek bank support lowered the Greek ELA ceiling to €89.1B from €89.7B ECB interest rate 0.05% no change as expected ECB QE purchases no change to target but raised the limit it can buy of any one bond issue to 33% from 25% ECB GDP forecast 2015 cut to 1.4% from 1.5%, 2016 cut to 1.7% from 1.9% ECB inflation forecast 2015 cut to 0.1% from 0.3%, 2016 cut to 1.1% from 1.5% US jobless claims 282K vs street 275K US trade balance ($41.8B) vs street ($42.2B) Canada trade balance ($0.6B) vs street ($1.2B) Canada exports 2.3% led by non-energy US natural gas 94 BCF vs street 90 BCF Eurozone retail sales 2.7% vs street 2.0% vs previous 1.2% Service PMI Reports: US Markit PMI 56.1 vs street 55.0 US ISM non-manufacturing PMI 59.0 vs street 58.2 UK 55.6 vs street 57.7 Germany 54.9 vs street 53.6 Spain 59.6 vs street 59.3 Italy 54.6 vs street 52.5 France 50.6 vs street 51.8 Upcoming significant announcements include: 7:00 am BST Germany factory orders street 0.4% 8:30 am BST Sweden industrial production street 2.2% 8:30 am EDT US nonfarm payrolls street 218K 8:30 am EDT US nonfarm payrolls previous revised from 215K 8:30 am EDT US unemployment rate street 5.2% 8:30 am EDT US average hourly earnings street 2.1% 8:30 am EDT US participation rate street 62.7% 8:30 am EDT Canada employment change street (5K) vs previous 7K 8:30 am EDT Canada full-time jobs previous (17K) 8:30 am EDT Canada part-time jobs previous 24K 8:30 am EDT Canada unemployment rate street 6.8% 10:00 am EDT Canada Ivey PMI street 53.3 vs previous 52.9 CMC Markets is an execution only service provider. The material (whether or not it states any opinions) 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 CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
ECB reaction plus US nonfarm payrolls and Canada jobs previews
20:00, 02 September 2015