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US equities are largely unchanged and a focus on the S&P 500 shows materials and financials under modest pressure, with energy and staples putting in the points. That should flow through into the Aussie market on open, with BHP’s ADR down 1.4%. Corporate credits spreads are unchanged, with fixed income really eyeing tonight’s US non-farm payrolls print, and the US ten-year treasury unmoved at 2.47%.
After a strong ADP private payrolls report yesterday (246,000 jobs) and good expansion in the manufacturing ISM employment sub-component, we are probably staring at a market that is positioned for a jobs print somewhat above the consensus of 175,000. Of the 87 economists surveyed by Bloomberg, the range of estimates is 238,000 to 140,000, so I suspect the market is eyeing a number above 190,000 (I’m going with 210,000), with an unemployment rate of 4.7%. Wage data is always important, and the market expects 2.8% growth here. One suspects that good numbers in this data set and cries of the “Federal Reserve are behind the curve” will echo loudly. Poor numbers means we’ll start to reassess our USD exposure. Although on the whole US data is looking quite upbeat and we would expect a strong Q1 GDP print, there will be headwinds from inventories and a weaker auto sector.
In the commodity space, we saw a decent pop in gold, with price breaking through the 24 January highs and into $1225, but the sellers have been active and the price is looking like it will be unable to sustain a close through resistance. As mentioned yesterday, a close through $1218 takes price into $1241. One suspects gold buyers will be cautious today ahead of the US jobs report as good numbers accompanied by a sell-off in US fixed income and USD strength means gold is likely to test the lows of $1198 in yesterday’s bullish hammer pattern. Those who bought yesterday will be deemed incorrect and we could see signs of reluctant selling here. The bigger support though is the 27 January swing low of $1180, this is the level where anyone who has bought in the last few days would have set stops below.
Staying on the commodity theme, oil prices are steady, while copper has given up some of the recent gains but still eyeing a break of the 2.75p/lb level. Put nickel on the radar, as that’s been on a tear in the past five days, largely thanks to mine closures in Indonesia (which account for 25% of the world's nickel production).
As mentioned, we have seen moves in FX land, specifically in GBP where the Bank of England failed to live up to the market's expectations of a more hawkish shift. We are eyeing GBP/USD, where the pair is looking to close firmly below yesterday’s low of $1.2543 and thus print a bearish outside day reversal (with price trading above Wednesday’s high and closing below the low). The big move in the G10 complex has been GBP/AUD (-2%) and is shaping up for a potential move into the A$1.6000 level. The AUD is just so strong at present and easily the best G10 currency over the past month (+6.7%), with AUD/USD trading just shy of $0.7700 (session range of $0.7696 to $.7582), helped to a degree by yesterday’s trade data, where real net exports could add a touch to growth. With price now coming into the market’s preferred sell zone, AUD/USD is also firmly on the radar.
Turning to Asian open, China’s financial markets come back to life today, and with it will come iron ore, steel and coking coal futures. Data flow is light, with small focus on the China Caixin manufacturing PMI print (the index is expected to grow at a slower pace of 51.8), but on the whole, we are staring at a flat equity open in Australia and Japan. Our call for the ASX 200 sits at 5653, which brings the weekly fall to 1.1%, unwinding all of last week’s good work. The economic data flow is light next week and while Trump can’t help but stay in the market's spotlight, Aussie earnings will start to ramp up, with a couple of big names RIO and TCL set to report. Valuations have come back a touch of late, with the ASX 200 now trading on 15.9x forward earnings thanks to recent consensus earnings per share upgrades (specifically in the materials space), but there is still little room for disappointment.