Europe to open lower in countdown to non-farm payrolls

CMC Markets

US stocks finished mixed on Thursday as investors eyed numerous economic data points and the latest staff appointments from Donald Trump.

Gains in energy, financial and industrial companies helped tip the Dow Jones into positive territory and just shy of 19,200. Tech stocks were the big underperformer, taking the Nasdaq 100 down by over 1.5%. A report suggesting as many as a million Google Android devices could be compromised by malicious apps raises security concerns the entire technology industry must address.

Stocks in Europe significantly underperformed US counterparts in November and that continued into the first day of December, with a lower open expected on Friday. Investors have been loath to ignore the lessons taken from other elections this year and are steering clear of European stocks and the euro before the Italian referendum.

Today’s non-farm payrolls report will, as always be the main event for the US dollar- but the report doesn’t carry its usual significance. The Fed is likely to raise rates in December regardless so the NFP report won’t have any immediate implication for monetary policy. It may have some implication for market’s willingness to accept the prescribed monetary policy. The hawkish talk from the Fed, even since the election, has been backed up by mostly strong US economic data. Data on Thursday showed the manufacturing sector expanded faster than expected in November.

The strong economic data has protected US stocks from rate hike fears because it’s thought the economy can withstand higher interest rates. The US dollar will likely hold its gains in expectation of tighter monetary policy; however the same might not be said about other assets. The blasé attitude in stock markets towards the hawkish Fed could be undermined by a rate hike accompanied by a softening labour market.

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Expectations are for 175k jobs created in November, up from 161k in October. Consensus appears a little overly cautious given the usual upswing in seasonal hiring before Thanksgiving in Christmas that takes place in November. Indeed, ADP private payrolls data surprised to upside this week with over 200k jobs created.

The British pound has benefited from the suggestion Britain could make contributions to the budget of the European Union to pay for single market access. Brexit secretary David Davis inferred that if making some contribution to the EU budget meant getting the best deal for trade in goods and services, then it would be considered. Markets may be getting a little ahead of themselves though. Davis’s answer to the question on paying into the budget was really just different wording for “all options are open,” something the government has said all along.

GDP figures from Switzerland and Finland and unemployment data from Spain are the being reported on Friday.

Equity market calls

FTSE 100: to open 44 points lower at 6,708

DAX: to open 58 points lower at 10,472

CAC 40: to open 29 points lower at 4,531


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