Markets in China are an exception, with rallies for the Hang Seng and Shanghai Composite on news a date for the Hong Kong-Shanghai Stock Connect program has been set. Just taking a step back though, the dominant theme in global markets has been some profit taking on the greenback following the payrolls print. This price action in treasuries and the USD suggests traders took the data as slightly dovish but I feel this could be short lived as it’s more likely due to positioning rather than a shift in sentiment. Non-farm payrolls were up 214,000 in October, falling short of expectations of around 230,000. However, the unemployment rate actually fell to 5.8% (lowest in six years) and the previous two months were revised upwards by 31,000. Average hourly earnings also fell short at 0.1% as the market was looking for a 0.2% rise.
Greenback likely to recover
All up, the US has logged nine consecutive 200,000 plus prints and this has taken the year to date average to 215,000. This is significantly bullish for the US economy and I feel nothing has changed from a policy perspective. I feel we could see the USD remain subdued in the near term with limited activity in the US for the next couple of days. US markets are shut on Tuesday for Veterans Day and this is also likely to impact trade activity on Monday. Data only kicks in on Wednesday, with fedspeak leading the way and this will help set the tone for the USD. There is also a lot of talk around Friday’s US retail sales. Analysts will be eager to see if the fall in energy prices has started to translate to a rise in retail spend. All up, I feel dips in the USD will simply be used as a buying opportunity particularly against the yen.
Japan struggles on dollar weakness
The Hang Seng and Shanghai Composite have outperformed on news that regulators have approved the Hong Kong-Shanghai Stock Connect program, which is set to commence on 17 November. This has prompted financial brokerage related stocks higher, as investors feel optimistic about the prospect of global investors accessing Chinese stocks from Hong Kong. There has also been CPI and PPI data out of Japan, although the reaction has been fairly muted. Japan has pulled back in line with the fall in USD/JPY. The pair rallied to ¥115.61 heading into the jobs numbers but has since pulled back to around ¥114.45. I feel the pair could find support in the ¥113.18 region which is the 23.60% retracement of the mid-October to November rise. Investors are also likely to be looking for buying opportunities in Japanese equities particularly after the recent changes to the GPIF. The next key event will be what happens with the second leg of the sales tax hike.
Uranium plays excel
The local market looks like it could be in for a bit of a pullback with equities in consolidation after recent gains. The biggest issue is the fact recent gains were driven by banks and as these banks trade ex-div then their appeal wanes. At the same time, resources are not quite contributing in the way they need to be in order to keep the market firm. As a result, it will be interesting to see where the gains will come from. There are some interesting isolated moves taking place though with gold snapping back after recent weakness and uranium also exceling. Uranium producers are rallying as uranium prices soar on the back of news Japan has cleared the way for a restart of its nuclear reactors.
Flat open for Europe
Ahead of the European open, we are calling the major bourses mildly firmer. It also looks like it could be a slow start to the week with investors looking ahead to the UK inflation report and GDP readings for France, Germany, Italy and the region. A firmer EUR/USD will not do equities any favours but presumably this strength is short lived and traders will continue to look to sell into strength. Apart from the data, there are a couple of events playing out at the moment, including the Catalonia poll which shows the region is overwhelmingly in favour of independence and the Swiss vote on whether to increase gold reserves. Any developments on these events are likely to have an impact on gold and the euro.