There appears to be little incentive this morning to drive markets strongly one way or the other ahead of this afternoon’s US payrolls report. We do have a slightly firmer tone with the FTSE100 underperforming somewhat due to a weaker oil price, but overall we appear to be in a holding pattern at the end of what has been a fairly turbulent week.
Banking stocks are slightly firmer this morning as are house builders despite this morning’s sharp drop in UK consumer confidence as investors mull over the prospects for both sectors in the wake of the sharp falls seen in the aftermath of last month’s Brexit vote.
The firmer tone in banks aside from a little short covering has been driven by reports that authorities are working intensely with the various Italian banks to find solutions to the problems of bad loans.
The pound appears to have stabilised in the past couple of days as markets speculate on the prospects for a rate cut next week. This morning’s latest trade numbers showed that the deficit narrowed in May, coming in at £9.8bn with non-EU trade coming in at -£2.5bn. The sharp drop in UK consumer confidence doesn’t appear to have shifted sentiment unduly given that it is already fairly bearish as it is, and the next move in the pound is likely to be determined by whether or not we get a strong payrolls number
US markets look set to open slightly higher ahead of this afternoon’s payrolls report with the US dollar slightly higher on the week, after this week’s US economic data came in slightly better than expected.
While the outcome of last month’s “Brexit” vote justified the Fed’s caution in holding rates in June, a decent payrolls report of anywhere near 200k could well reignite expectations of a move on rates in September, especially if average hourly earnings also show evidence of rising as well, with an annualised rise of 2.7% expected.
Market expectations for payrolls are for a number similar to yesterday’s ADP number of 175k, which suggests that the element of surprise is probably tilted to the downside, and we also need to bear in mind that the headline figure will see an artificial boost of 35k in the same way that last month’s number saw a 35k drag due to the Verizon (NYSE:VZ) strike.
A number anywhere in the region of 100k will defer even further any prospect of a possible rate rise, as will a poor wages number.
The Dow Jones is expected to open 15 points higher at 17,910
The S&P500 is expected to open 1 point higher at 2,099
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