It took a while, but after the disappointment of Friday’s August payrolls report had been absorbed, US markets eventually resumed their normal service of pushing higher on bad news and closed at new record highs, as the probability of a move up in US interest rates got pushed back into the second half of next year at the earliest.
Friday’s payrolls number was particularly disappointing, given how positive most of last week’s economic data had been. This has prompted some to dismiss Friday’s number as a bit of an outlier that could well get revised higher when next month’s jobs number is released.
Nevertheless, some of the speculation that had been building that last week’s data improvements might bring forward the timing of a US rate hike was pretty much laid to rest by Friday’s disappointing number, as well as the downward revision to June’s number, though it won’t alter the timing of the Fed’s tapering program which is due to finish at the end of October.
As a result of Friday’s record US close, markets in Europe are set to open higher this morning, though events in Ukraine remain a concern given the fragility of the ceasefire, while in the UK nervousness over the Scottish referendum vote is likely to act as a drag on the FTSE 100, and FTSE 250.
As the Scotland referendum vote moves firmly into view today’s focus is likely to be on the latest opinion poll that has put the “Yes” camp in the lead for the very first time and the “No” campaign’s headless chicken response to it.
For quite some time investors had dismissed the prospect of a “Yes” vote as an outlier, but recent opinions polls have shifted that perception and this has been no better demonstrated by the plunge in sterling in Asia this morning.
Any increase in uncertainty always makes investors nervous and we could well also see weakness in the share prices of companies that have a significant presence in Scotland, but it should also be remembered that we are only talking about an opinion poll here, with the actual vote still 10 days away, which is likely to mean quite a lot more volatility in the coming days.
One thing is certain, if we get this sort of volatility on the prospect of a “Yes” vote, can you imagine the reaction if we do get a “Yes” vote? It’s not likely to be pretty.
EURUSD – the euro appears to have found some support around the 1.2920 area, but still closed lower for the eighth week in succession. It now needs to overcome resistance at the 1.3020 area to suggest a rebound towards 1.3110. A move below 1.2920 argues for a move towards the 1.2790 level in the coming weeks. The 1.2790 level is the 61.8% retracement of the up move from 1.2045 to 1.3995.
GBPUSD – the pound has plunged in Asia gapping below 1.6280, and through the lows this year at 1.6250 and looks set to push down towards the 1.6000 level which is a 50% pullback from the 1.4820/1.7190 up move. The pound needs to recover back through 1.6280 to eliminate this downside risk, and argue for a return to 1.6520.
EURGBP - the euro has broken beyond trend line resistance from the August highs at 0.8000 in Asia trading and could well see a move towards 0.8040, and even 0.8085. Support should come in around 0.7970.
USDJPY - the US dollar has thus far been unable to push through the 105.50/60 thus far and while below the risk remains for a slide back lower towards 103.50. This remains a huge level given it was the recent high from the end of last year, as well as the 61.8% Fibonacci retracement of the decline from the 2007 highs at 124.13 to the lows 75.58 in 2011. A move through 105.60 argues for a move towards 109.
Equity market calls
- FTSE 100 is expected to open 4 points lower at 6,851
- DAX is expected to open 40 points higher at 9,787
- CAC 40 is expected to open 8 points higher at 4,494
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