Expectations raised ahead of non-farm payrolls

Most Asian markets are firmer today after a key reversal higher in US trade triggered by a much better-than-expected ADP non-farm employment change print.

This raised expectations ahead of the non-farm payrolls print tomorrow. The reading showed 188,000 jobs were created versus estimates of around 161,000. Unemployment claims were only slightly better than expected, while the US ISM services PMI and trade balance disappointed.

China has led the way in Asia today after having underperformed significantly over the past few weeks. The Hang Seng has jumped 1.8% and the Shanghai Composite has put on 1% in what seems to be a relief rally led by consumer stocks. Japan is underperforming the region today, but continues to hold at around the 14,000 level.

With USD/JPY back below 100, we were expecting to see the Nikkei struggle today. Should the Nikkei (down 0.1%) finish in negative territory, this would be its first fall in six sessions. However, we are not alarmed and feel this is a bit of consolidation after what has been a strong run.

The net effect of all the US data released last night was a mildly weaker USD as it lost ground to most major currencies apart from the AUD. AUD/USD has had a rollercoaster ride this week with plenty of event risk hitting the wires. The pair came under pressure again after building approvals showed a 1.1% contraction, wider than the expected 0.9%. The pair recovered to a high of 0.9133 after RBA Deputy Governor Lowe hit the wires and poured water on some of the comments we heard from Governor Stevens yesterday. This should prompt some short-term relief for AUD/USD which has endured a rapid sell-off recently. However, any strong bounces into the 0.925 region are likely to be used as an opportunity to sell.  

European markets are facing some modest gains at the open as they react to the broad recovery in Asia. EUR/USD continues to hover around 1.30 with a cautious tone heading into the ECB decision. While the region is facing Portugal and Greece concerns again, we feel the chance of anything too substantial is low. Data has improved of late and we feel Mario Draghi will acknowledge the improvement and also say the ECB will look at ways to boost the economy should conditions not continue to improve.

This would support the euro in the short term, but the recurring structural and periphery issues are likely to continue catching up to the single currency. GBP/USD is also sidelined at around 1.526 ahead of the BoE. The pair jumped significantly yesterday on the back of a better-than-anticipated services PMI reading. Not much is expected from the BoE later today, particularly with the economy there ticking along just fine. It’ll be interesting to hear what tone Mark Carney sounds at his first meeting at the helm. US markets are closed today for the July 4 holiday, so leads will be relatively light on the USD side with vastly reduced liquidity.

The ASX 200 has picked itself off the mat again today, having been knocked down significantly yesterday. We are now up 1% at 4790 with the healthcare and energy names leading the charge. CSL Limited has jumped 3.4% and Resmed has climbed 1%. The big story of the day has been the NSW government’s approval of Crown’s planned casino. While both Crown and Echo are in trading halts, we expect to see CWN benefit from the news, while EGP comes under pressure. Energy stocks are among the best performers of the day with oil continuing to benefit from all the developments in Egypt. Woodside Petroleum has surged 3.1% and Beach energy has jumped 4.2%. Fortescue Metals has led a rally in iron ore names today with a 7% gain.

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