Daily Market Update – Friday 4th March 2016

Yesterday / Overnight News

  • Asian equities saw choppy trade throughout the session with price action indecisive amid caution ahead of the key US NFP jobs data release later today. The Shanghai Composite was down by 0.4% and saw mild volatility amid hopes of stimulus measures, while the PBoC conducted its largest net weekly drain in 3 years of CNY 840 billion. 10 year JGBs traded higher amid the cautious tone with the BoJ also in the market under its large asset purchase program for JPY 1.26 trillion across all maturities.
  • In FX, there was an early cautious tone and comments from the BoJ Governor Kuroda who dismissed the likelihood of near term easing and this initially supported flows into the safe haven JPY and pressured USD/JPY. Commodity linked currencies have been supported from gains in crude oil and metals, while the CNY is firmer after the PBoC strengthened the reference rate by the most in nearly 3 weeks.
  • WTI crude futures traded mostly sideways overnight with prices edging a mild gain to approach closer to reclaiming the $35 a barrel level. Gold pulled back from its best levels although still managed to hold on to the majority of yesterday’s gains, where the USD weakness and mild cautious sentiment boosted the precious metal in to bull market territory.
  • In geopolitical news, North Korean leader Kim ordered nuclear weapons to be prepared ready for use at any time according to reports.
  • In corporate news, the London Stock Exchange’s total revenue rose 78% to £2.3 billion in 2015 while describing a merger with Deutsche Borse as a “compelling opportunity”.

What to Watch for Today and for the week ahead

  • European markets are expected to open marginally higher for the last day of the week and ahead of today’s much anticipated jobs release from the US.
  • The US labour market report from February is the dominant release today. US employment growth slowed in January. However, when coupled with a decline in the unemployment rate to a new cyclical low of 4.9%, it was still strong enough to suggest that the labour market was continuing to tighten. We expect a rise in employment of 195K in February, stronger than in January but still below the gains seen in Q4. Also of interest is whether the annual pace of wage growth continued to edge up.
  • Also in the US the January international trade balance will provide a reading on the strength of the export sector. Export activity was sluggish in Q4 and that is expected to be the case again this quarter.
  • Outside of the US there are no major data releases other than a second estimate for Q4 Italy GDP. That is forecast to be unchanged from the initial reading.
  • It is worth noting that China’s National People’s Congress is scheduled to discuss the next 5 year economic plan and potential further stimulus over the weekend.
  • Finally, it’s a quiet day on the corporate front with a preliminary 2015 earnings release from London Stock Exchange Group Plc and a full year 2015 earnings release from WPP Plc.

Economic Data Release Schedule

blog11

Trade Of The Day

EUR/USD:

The focus for today is going to be the February US employment report at 1.30pm and traders will be looking for signs as to whether the US Federal Reserve will hike interest rates in the near term. Wednesday’s ADP figure, which is an indicator for today’s non-farm payroll number, was better than expected indicating that we could see a strong number out of the US today. All of this should cause some volatility in the EUR/USD pair and, technically, it has broken out of a wedge reversal pattern to the upside indicating that the markets are bullish in the short term on the Euro. We would prefer to be trading in this direction and will look for a pull back to the round number and psychological 1.0900 area before buying with a stop just below the last swing low at the 1.0850 area. We will look to take profit on the way up at the most recent highs of the 1.0967 area first of all, followed by the round number and psychological 1.1000 area.

blog12