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After the volatility of the last couple of days, markets paused for breath this morning ahead of the monthly US unemployment data release, the non-farm payrolls. Considering the battering the FTSE 100 has taken in the last two weeks, sliding more than 500 points, the quiet morning session belied the nerves that still remained. There was the concern that a worse-than-expected jobs number could be the catalyst for another plunge for markets. When it was revealed that 175,000 jobs were added in the US economy in May – admittedly only slightly better than forecast – you could almost hear the collective sigh of relief, and blue-chips in London have staged a decent rally.
Despite today’s higher-than-expected payrolls number, markets may well remain jittery in the weeks ahead. With the central banks, particularly the US Federal Reserve, having pumped so much money into the system in recent years there is still the nagging concern that although the QE tap may not be switched off, the flow could well be reduced in the months ahead. This is widely accepted to have acted as a somewhat artificial support for stock markets – so traders are bracing themselves for the potential of sharp sell-offs again as this uncertainty continues.
It was the same picture for US markets of course, with all eyes on the non-farm payrolls. The session in the US has got off to a good start with the Dow up 150 points in the first half-hour. This has helped continue the momentum seen towards the end of Thursday, and US markets have not been hit as hard in recent weeks as their European counterparts.
If the Dow and the S&P can hold onto these early gains, we could actually see a positive finish for the week in the US. As in Europe, all eyes next week will be back on the central banks, watching for any indication of changes to the QE policy. Although today so far has seen a positive day for stock markets, the last two weeks have seen definite changes in sentiment and there's real concern about just how sustainable this year’s rise can be from here.
By the end of yesterday’s European session the GBP had gained more than four cents against the US dollar for the week, and the euro had put on nearly three cents. This led many traders to think that no matter how bad the payrolls report ended up being for the US dollar, that was maybe far enough for now both of these currencies. The better-than-expected number saw a quick boost for the US dollar – however once today’s excitement is out of the way it will not be surprising if markets move back to being dollar sellers next week.
As usual today has delivered volatility across the board, with plenty in the commodities markets. Oil struggled to decide whether the payrolls news was good or bad and has seen some impressive swings this afternoon but is ending the day near the highs with US Crude just shy of $96 a barrel.
Gold has seen the bigger directional move – not surprisingly a stronger US economy and more positive outlook for the dollar has been something of a double whammy for gold, knocking the price back to fresh lows for the week around $1385 per troy ounce. Gold certainly struggles to hold onto meaningful medium-term gains at the moment and it seems difficult to see that changing in the short term – there remains an appetite to be a seller into strength.