Gold and crude oil advance, stocks pause as traders await nonfarm payrolls
Stock markets in the US and Europe traded pretty much flat, pausing for a second straight day with traders reluctant to go too far out on a limb ahead of tomorrow’s nonfarm payrolls report. Service PMI was in line with expectations while factory orders were a bit below.
Over the last week a number of better than expected US economic figures including rising core PCE inflation, strong durable goods orders and personal spending, the upward GDP revision, a positive ADP surprise plus recoveries in stocks and crude oil have put the possibility of a March interest rate hike back on the table.
US news today has been slightly more dovish today. Dallas Fed President Kaplan suggested the Fed should be patient in normalizing rates, today’s service PMI was in line and factory orders improved but not as much as had been hoped by the street. USD dropped back a bit today on the news sparking a rally in gold back up through $1,250 and toward a retest of its February high near $1,262.
With a really light week coming for US news, Friday’s nonfarm payrolls report is one of the last big US indicators before the March 16th Fed meeting. A reading above 250 could build speculation for a rate hike while a reading below 100 could keep the Fed on hold. In between and it could go either way. The street is expecting 190K. I think that between the strengthening economy and a benign winter in much of the country we’ll see 220K plus a 20K upward revision to last month.
We could see particularly strong trading action on the news between currency markets (where multiple rate hikes this year are priced in) and bond markets (where no rate hikes this year are priced in) with stocks potentially getting caught in the crossfire.
Canadian stocks have outperformed their US counterparts today with the S&P/TSX index rising 0.75%, boosted by energy and mining stocks (both gold and base metals), which bodes well for trading in Australian resource sectors today. AUD remains strong and could be active around today’s Australian retail sales report. JPY has been a bit soft which could provide more support to Japanese stocks today.
Crude oil continued to climb today boosted by reports that US oil production fell for a 6th straight week and more talk about a meeting coming later this month between OPEC and non-OPEC producers to nail down the production freeze discussed last month. Friday the US Baker Hughes drill rig count could attract attention again.
There have been no major announcements after the US close today.
Significant announcements released overnight include:
US jobless claims 278K vs street 270K
US factory orders 1.6% vs street 2.1% and previous (2.9%)
UK Markit service PMI 49.7 vs street 50.0
US ISM non-manufacturing PMI 56.4 vs street 53.1
France Q4 unemployment change (47K) vs previous 75K
France Q4 unemployment rate 10.3% vs street 10.5%
UK Nationwide house prices 4.8% vs street 4.9%
UK Halifax house prices 9.7% vs street 10.4%
Eurozone retail sales 2.0% vs street 1.3%
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
11:30 am AEDT Australia retail sales street 0.4%
8:30 am GMT Sweden industrial production street 5.7%
9:00 am GMT Italy GDP street 1.0%
8:30 am EST US trade balance street ($44.0B)
8:30 am EST Canada trade balance street ($0.90B)
8:30 am EST US nonfarm payrolls street 195K vs previous 151K
8:30 am EST US private payrolls street 190K
8:30 am EST US unemployment rate street 4.9%
8:30 am EST US average hourly earnings street 2.5%
8:30 am EST US participation rate street 62.8%
10:00 am EST Canada Ivey PMI street 58.0 vs previous 66.0
1:00 pm EST US Baker Hughes drill rig count previous 502