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DAX set to open at a new record high, US ADP report in focus

Berlin Brandenburg gate wiith German flag

European markets had another positive session yesterday, with a new record high for the DAX, while the FTSE 100 fulfilled its role as the perennial party pooper, with another disappointing session and closing lower for the second day in succession. This was mainly due to weakness in metals and energy prices, as Brent crude prices closed at a five-month low.

US markets also struggled for gains, with the Nasdaq 100 closing higher due to a strong performance from the magnificent seven, led by Apple and Nvidia, while the Russell 2000 finished the day over 1% lower, with the S&P 500 and Dow Jones closing little changed.  The indifferent finish seen in the US has been shrugged off by Asia markets, with a strong session there after the Bank of Japan’s latest Tankan survey showed a big improvement in manufacturer sentiment, with the auto sector recording a second successive month of gains as chip shortages eased. This rebound in Asia markets looks set to filter through into this morning’s European open, with the DAX set to open at a new record high.

Yesterday’s economic data from Europe pointed to a modest improvement in services sector economic activity, while the latest US ISM service sector numbers were a mixed bag, with the headline number coming in ahead of forecasts at 52.7. Prices paid did slow but by less than expected, coming in at 58.3 pointing to stickier than expected inflation, while the employment index edged higher to 50 7.

Today we get a look at the latest US ADP payrolls report for November, as an appetiser for Friday’s non-farm payrolls report. We are starting see increasing evidence that the US jobs market is starting to slow, with vacancies falling to their lowest level since March 2021, and with the last two ADP reports adding a combined 202,000 new jobs as private sector hiring slows.

In October 113,000 jobs were added, an improvement on September, while November is expected to see an improvement on that to 130,000, given that a lot of additional hiring takes place in the weeks leading up to Thanksgiving and the Christmas period. So we’re unlikely to see any evidence of cracking in the US labour market this side of 2024. 

We also have the latest interest-rate decision from the Bank of Canada, where we aren’t expecting any changes to monetary policy here with the central bank forecast to keep rates unchanged at 5%. The last three months have seen no growth in the economy at all, while the October jobs report showed a rise of 17,500 jobs, all of these were part-time positions. On full-time employment, we had the first decline in jobs growth since May, at-3,300, while unemployment rose from 5.5% to 5.7% and the highest level since January 2021. We’re also starting to see inflationary pressure continue to subside, with core CPI on the median slipping from 3.9% to 3.6% in October. 

Forex snapshot

EUR/USD – has fallen below the 200-day SMA at 1.0825, with a fall below the 1.0800 level raising the prospect of a move towards the 50-day SMA just below the 1.0700 area. Resistance now at the 1.0940 area, and behind that at last week’s highs at 1.1015/20.

GBP/USD – has failed to move above the 1.2720/30 areas, prompting the pound to slip back towards support at 1.2580/90 area. A break below 1.2570 signals a deeper pullback towards the 1.2460 area and 200-day SMA. A move through the 1.2740 area signals a move towards 1.2820. 

EUR/GBP – has found support at the 0.8555 area and is currently looking to recover through the 0.8600 area. While below the 0.8615/20 area, the risk remains for a move towards the September lows at 0.8520, and potentially further towards the August lows at 0.8490.

USD/JPY – is currently trying to rally off the recent lows at the 146.20 area, with resistance now at the 148.10 area. Looks vulnerable to further losses while below this cloud resistance with the next support at the 144.50 area.


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