European markets enjoyed a decent session yesterday, buoyed by a rising expectation that Emmanuel Macron could win the French presidency this weekend. 

Markets were also helped by a tailwind of some decent April services PMI numbers from Spain, Italy, France and Germany, with the CAC 40 continuing to make new multi-year highs, in the process gaining a foothold above the 5,300 level that it struggled to get above last week, while the German DAX made another new record high.

The FTSE 100 was held back by a collapse in crude oil prices to their lowest levels since last November, on the back of concerns about slowing demand from China, rising US output, and a reticence on the part of Russia to commit to extending the quota cap into the end of this year. This was later clarified by the Russian energy minister who said the OPEC cuts deal should be extended, a little late in the day it has to be said, though probably nothing to do with the fact that prices closed at their worst levels in five months, maybe?

Today’s main focus is expected to be on the latest US employment report after the Federal Reserve unsurprisingly kept rates on hold at its meeting on Wednesday. The tone of the statement was interpreted in a very hawkish fashion by the market in so much as fed fund futures are pricing the prospect of a move in June as a done deal, with an over 90% probability.

This is quite unusual six weeks out and suggests that the risks probably remain skewed to the downside and the Fed potentially disappointing. While it is not surprising that Fed officials expressed some misgivings about recent data, there is no guarantee that it will be transitory and that could put at risk the Fed’s expectations that the US economy would grow in line with expectations of 2.1%, and inflation return to target, particularly given this week’s spectacular implosion in commodity prices.

Soon after today’s payrolls data we have speeches from Fed chair and vice chair Janet Yellen and Stanley Fischer where we might glean some extra details on the various Fed views on the overall performance of the US economy. More importantly will they play down market expectations of a June hike from currently elevated levels, so that they aren’t backed into a corner to implement a hike they might prefer to delay?

Today’s payrolls are expected to come in at 190k for April but there will also be particular scrutiny on any revision to the surprisingly low March number of 98k, especially in light of the fact that the equivalent ADP number was so strong at 263k. Weather related arguments don’t really stack up when there is that sort of divergence.

The unemployment rate is expected to tick up slightly to 4.6%, but the more important factor will be what wages do. Yesterday labour costs for Q1 shot up to 3% from 1.3%, so you would expect to see equivalent inflationary pressures in average hourly earnings, however expectations here are for an unchanged number of 2.7%. Ultimately investors will be looking for evidence of a tightening labour market but thus far there has been little evidence of that despite jobless claims being at multi year lows.

Forex snapshot

EUR/USD – currently unable to consolidate a move through 1.0950 which could precipitate a move back towards the 200 day MA and 1.0820 area. While we hold above here the prospect of further gains towards 1.1000 remains.

GBP/USD – having been unable to push up to the 1.3000 area we could see a move down through 1.2850 towards the 1.2750 area, before another attempt to push higher. Only a move below 1.2750 argues potentially back towards the 1.2600 area.

EUR/GBP – could see a move back through the 0.8480 are towards broader resistance at the 0.8570/80 area where the 50, 100 and 200 day MA’s converge on each other. Solid support remains near the 0.8410 area.

USD/JPY – looks to be on course to test trend line resistance from the highs this year which comes in at 113.10, with additional resistance also around the 112.90 area, a break of which could well see a test of the March highs around 115.00. A failure to overcome the 113.00 area is likely to see a move back towards 111 50.


Heightened market volatility is likely over the election period, this could result in widened spreads. We recommend that you monitor positions carefully, consider the use of appropriate risk management tools and maintain a sufficient account surplus throughout this period.

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