Have you ever had that feeling when everything goes eerily quiet that something big is about to happen? Today could be one of those days for the markets.
US index futures, European indices and Asia Pacific have pretty much all been trading flat to slightly positive with most major markets moving less than 0.5% Similarly, crude oil and most major currencies have also been very very quiet.
With a really light week coming for US news, today’s nonfarm payrolls report could have a particularly big impact on sentiment and trading as one of the last big US indicators before the March 16th Fed meeting. FOMC members started off the year calling for four interest rate increases which would suggest one in the plans for March. Several speakers backed away from this due to the high market volatility over the first six weeks of 2016. The rebound in stocks and crude oil along with a series of strengthening and above expectations economic reports including the GDP upward revision, rising core PCE inflation, and others has put a potential March rate hike back on the table.
FOMC members speaking lately have split into three groups. The doves say they are really worried about market risk, tightening financial conditions and potentially lower inflation and that the Fed should slow down or stop raising rates. The hawks say recent volatility is common through a monetary policy
and will blow over so the fed should continue its plan. The middle group favours keeping options open and taking a wait and see approach. Today’s payrolls report could indicate which group is likely to have the upper hand.
A reading above 250K could increase speculation for a March rate hike even further while a reading below 100K would pretty much cement no action and perhaps even rekindle speculation of a potential rate cut or negative rate talk. In between and it could go either way. The street is expecting 190K. I think that between the strengthening economy, a benign winter in much of the country we’ll and the improvement in ADP payrolls 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 several 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. We could potentially see significant swings
in both directions immediately following the news as both camps scramble to seize the moment or scramble to get back on side.
One market where traders have been willing to act ahead of the payrolls news is gold, which has broken out to a new high on trend clearing $1,262 and advancing on $1,275. This action would suggest traders are expecting a weak jobs report today which could force the Fed to hold off on raising rates which would likely cause USD to give back more of the gains it made over the last week. Gold’s rally may also be related to speculation of further stimulus coming from the ECB next week with a deposit rate cut widely expected at a minimum.
Later in the day, CAD could be active around the Canadian PMI report while crude oil could respond to the weekly Baker Hughes drill rig count. The US and Canada trade balances may get overshadowed by payrolls. Over the weekend, economic forecasts out of China coming from the National Peoples’ Congress meeting could impact markets on their return to trading Sunday afternoon.
There have been no major corporate reports in North America so far this morning.
Significant announcements released overnight include:
Sweden industrial production 4.6% vs street 5.7%
Italy GDP 1.0% as expected
Australia retail sales 0.3% vs street 0.4%
Upcoming significant announcements include:
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