Europe stocks firm ahead of US jobs data

Market Review

The markets have provided decent price action this week, as we have been anticipating this month's release of the Non-Farm Payrolls and the ECB press conference as well as negotiating global manufacturing and services sector data. The EURUSD has seen a decent amount of movement, the S&P – though not volatile – has consistently been driving higher, whilst Crude and US10Y have been driving in opposite directions with perhaps crude being the most volatile asset. The ECB press conference yesterday saw some decent comments where for one they had discussed lowering interest rates as well as QE and this helped lower the value of the Euro. Ultimately if 0 is no chance of QE and 100 is the ECB actually implementing QE then Draghji’s comments yesterday saw the ECB move from about 25 to 30. i.e. marginally increasing the likelihood of policy action but overall the most likely outcome continues to be no action. The Central bank are still viewing the decline in inflation as ‘temporary’ as Draghi again said the medium term inflation outlook remains firmly anchored. So ultimately we will need to see CPI levels track further lower in the coming months in order for the ECB to realise their medium term outlook is wrong and that they need to act. Yesterday’s oil strategy hit entry and went about 60 ticks onside before coming back to the entry and stop, whilst the EURUSD yielded a few ticks profit, as did US10Y. Overall the day was positive with the distribution on each asset.

Today's Fundamental View

This afternoon we will finally see the release of this months El Gordo! Unlike last month we have a bullish outlook for the payrolls number, on the back of several reasons which summed up can be stated as generally better data and conditions in the labour market. More specifically; total vehicle sales in the US passed 14 millions, which is only the second time since 2007. Labour market conditions have improved an numerous indicators including IJC as well as ISM and ADP readings. Of note, summer is also around the corner and the winter conditions with heavy snow and storms which have been listed as seasonal that impacted the readings. In other words, if the number today is not better; the reasoning of seasonal effects being to blame may have been massively overdone and we may see a large pull back in the S&P. To this there is one caveat though… Stimulus. If it turns out the seasonal effects have been wrongly accused of the slow down, will the Federal Reserve put tapering on hold? It will remain to be seen, but as per now we are very bullish on this number and have little doubt it will surpass the magical 200k mark, to the detriment of any bear out there as we wear our Viking helmets with the biggest bull horns you have ever seen attached. At least for now, Jim O’Neill who has supported the bullish run for a while spoke with CNBC and stated he is no longer all out bullish as he has difficulties seeing continued upside on the year as a whole, meaning that there is still room for temporary upside – and 1900 should definitely feel threatened. The USD is likely to go bid with equities, and the US10Y will sell off. The most difficult trade today is Crude where the dollar will weigh down on it, whilst the risk-on sentiment should take it higher. As it finally gave way to the upside yesterday we have decided on a cautious long