Following last Friday’s poor payrolls number, traders have been questioning whether time would ‘heal all wounds’? Even with time counted in days in this case, rather than weeks, let alone months. Considering that markets don’t usually like surprises, Friday’s big US payrolls miss would typically have shocked markets into a big move. With the extended Easter weekend break, however, traders may have had the time to digest this huge blow, along with their chocolate eggs. Some were even willing to speculate that this sluggish momentum in US job creation could persuade the Fed to move on rates later. March’s non-farm payrolls grew by a dismal 126k jobs, disappointing market expectations of an increase of 245k. This was the lowest non-farm payrolls reading since December 2013, and it has also broken well below the symbolic 200k number, a number that had been achieved in each of the last 12 months.

EUR/USD breaking a channel

Only the bond markets – open but with reduced trading hours and participants – were able to react to this report, as equity markets in the US were closed for Good Friday. 10-year treasuries soared, bringing yields down to 1.84%. The USD also broke down sharply, with the eurodollar touching 1.10 in early trade, only to close at 1.097. The EUR/USD seems to have broken above its descending channel since December 2014. For this to be confirmed, it needs to now break above the key resistance of 1.11, representing January’s low and also the 50-day MA. If this is possible, it would represent a strong reversal of the slide since last summer, as it would also confirm the 1.07 level as a ‘higher low’. However, if the EUR/USD fails to hold these levels and falls back into the channel, we could see another test of the 1.045 downside support once more.

Crude

The Iranian nuclear accord reached an agreement this past weekend, leading to an initial knee-jerk sell down on Crude as worries over supply disruption subsided. Brent crude was sold down almost 4% to US$54.95 while WTI loss less ground, around 2% to US$49.14. Also out late Sunday, striking United Steelworkers at one of the remaining five oil refineries there still on strike (since February) have reached agreements with Oil Nationals and have agreed to return to work next week. This could provide a further support and possibly boost the WTI’s price, hence further narrowing the discount that it trades to the price of Brent Crude. The chart below compares the ‘cash’ prices of both the Brent and WTI prices. The premium of Brent over WTI was at the highest for the year in late February. This was also the time when impact from the refineries strike was at its peak. Then, up to 20% of the refining capacity in the US was affected, which also led to an increased inventory in unprocessed Crude. The spread from February’s high of US$7.50 has narrowed to currently sit around US$2. A pair trade initiated then and closed now would have yielded a roughly 10% return, without any market risk.

China Indices

Headwinds may be in the near horizon for Chinese Shares as the IPO calendar for April highlights a busy month, with almost 30 issues on offer. With funds expected to be locked up and committed for IPO proceeds, liquidity in the secondary market may be affected. Further, with the China A50 delivering up to a 20% gain in March, profit taking may set in. Upside risks may come in the form of further stimulus from central banks, however, this has been a move widely anticipated by the market for a move in April.
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