The first trading day of the month was positive thanks to a strong non-farm payrolls update on Friday.
European plus US equity markets finished higher as there was a renewed sense of optimism due to the US jobs update.
Last month, 128,000 new jobs were added in the US. Going into the announcement, economists were only expecting 89,000. The September report was revised higher to 180,000 from 136,000, so it was a double victory for the non-farm payrolls update. Average earning came in at 3%, while the unemployment rate nudged up to 3.6% from 3.5% - a fifty year low. In the grand scheme of things, the tiny increase in the jobless rate isn’t that important, as the block of data as a whole was positive.
CPI in the US is running at 1.7%, so the 3% growth in average earnings leaves workers in a comfortable position. A nice increase in real wages will keep disposable incomes healthy, which should translate into more spending. The S&P 500 plus the NASDAQ 100 racked up all-time highs on the back of employment data.
The ISM manufacturing reading came in 48.3, while economists were expecting 48.9. The update showed the sector remained in contraction territory but at least it was an improvement on the September reading of 47.8 – which was the lowest in 10 years. Manufacturing in the US, China plus Germany have been under strain recently, which is a direct result of the US-China trade spat.
On the trade front, some progress was made at the back end of last week. The US have had concerns about the dip in the Chinese yuan, in addition to intellectual property rights, and positive steps were taken in relation to those issues.
Overnight, stocks in China traded higher on optimism surrounding the US-China trade situation. On Sunday, Wilbur Ross, US commerce secretary, said the licences for US firms to sell to Huawei will be granted shortly, and that announcement boosted sentiment as it points to progress being made.
Now that the Brexit chatter has cooled, the talk surrounding the UK general election has entered the fold. Opinion polls have put Boris Johnson’s Conservative Party in the lead, which has given a lift to the British pound. The business friendly policies of the Tories have encouraged dealers to buy into sterling.
Gold as well as silver lost ground on Friday as traders were in risk-on mode. The rally in global stocks post the US jobs data coaxed traders do drop precious metals as they are deemed to be lower risk. Gold pushed lower, but it didn’t drop below the $1,500 mark, which underlines the reliance of the market.
A number of European countries will release their final manufacturing readings for October between 8.15am (UK time) and 9.30am (UK time). The Spanish, Italian, French, German and UK reports will be posted, and economists are expecting 47.5, 47.5, 50.5, 41.9 and 44 respectively.
At 3pm (UK time), the US will announce the latest factory orders report, and the consensus estimate is -0.6%, which would be a sharp decline from the 0.1% from posted in August.
EUR/USD – has been driving higher since the start of the month, and a break above 1.1200 might put 1.1249 on the radar. A move lower might bring the 50-day moving average at 1.1039 into play.
GBP/USD – remains in the recent aggressive upward trend and a sizeable break above the 1.3000 area might bring 1.3178 into play. A move lower might put the 200-day moving average at 1.2711 on the radar.
EUR/GBP – is still in the bearish trend, and a break below 0.8575 could pave the way for 0.8471 to be targeted. If it manages to hold above the 0.8600 mark, it might retest 0.8786.
USD/JPY – while it holds above the 50-day moving average at 107.69 it could target 109.31. A move back below the 50-day moving average might bring 106.48 into play.
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