LCG Research: Wall Street & Asia Lower Ahead of NFP.


US stocks fell for a second straight session and Asian markets followed Wall Street lower overnight. Markets continue to digest the Fed’s message of “Sorry, no rate cuts anytime soon”. The Fed is still sitting on their hands due to lacklustre inflation. However, Fed Chair Jerome Powell saying that low inflation factors are most likely transitory put to bed ideas of a rate cut. The market starting to accept that the period of lower interest rates for longer will slowly be coming to an end. The dollar closed modestly higher versus a basket of currencies.

Tech stocks led the sell off on Wall Street with Apple and Microsoft pulling back from new highs after better than forecast earnings earlier this week. Energy stocks struggled on Wall Street and in Asia as oil continued its decline. Investors are unable to shake off concerns over rising US stockpiles, even as supply remains tight across the rest of the globe.

HSBC beats, SocGen misses

Banks will be in focus as European indices open. HSBC posted a 31% increase in earnings, beating estimates, thanks to a boost in income from its core Asian business and as costs were reined in. Results from SocGen were at the other end of the spectrum, with profits nose diving 26% in the first three months of this year amid challenging market conditions in Europe. These disappointing results come after SocGen announced heavy cuts to its workforce in a bid to boost profitability. The results of the two banks highlight the very different trading environments for banks in Europe and Asia right now.

NFP: What to expect

After a second straight session of gains, the dollar was trading steady as investors look ahead to today’s non-farm payroll report. Last month’s goldilocks report recorded headline figures ahead of expectations and wages just shy of forecasts provoking a subdued market reaction. Today’s NFP is expected to show that 181k jobs were created in April, in line with the average over the last three months (180k). Wages are expected to increase 0.3% whilst the unemployment rate is forecast to remain steady at 3.8%. All in all, a report with these figures would be considered a steady if not rather uninspiring report.

ADP data, which serves as a good leading indicator for NFP’s, printed ahead of expectations with a healthy 275k. The jobs component of the ISM manufacturing report was less encouraging. Throw into the mix the fact that the ISM service report isn’t released until after the NFP and it becomes clear that attempting to predict this month’s report is even more challenging than usual.

Given that this NFP comes just days after the Fed essentially ruled out a rate cut this year, but markets are still pricing in a 50/50 chance. We think there is more room for extended dollar-gains on a strong number than there are losses after a weaker figure. Given that that stocks have fallen for the last two days, there’s a good chance investors find enough to like in this report to buy the dip.

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Jasper delivers regular commentary, seminars and webinars on market news, trading analysis, strategy and psychology. He is regularly interviewed by BBC News, Bloomberg, CNBC and Sky News, and has featured in The Times, Guardian and Daily Telegraph. Jasper hosts a weekly charting analysis webinar. He is qualified as a Chartered Market Technician (CMT) with the Market Technician Association, and has a degree in Finance and Economics.