Optimistic mood going into NFP

Market Review

Yesterday’s session was dominated by the comments from Mario Draghi in the ECB’s monthly monetary policy press conference. In the build up to the press conference rumours had been circulating that there was disharmony within the ECB governing council with some members questioning Draghi’s leadership style and dovishness. Draghi sought to strongly dispel these rumours and his most important announcement was that the entire governing council were unanimous in the effort to expand the ECB’s balance sheet back to March 2012 levels. This means asset purchases of around €1trl and it is difficult to see how this is going to be possible without full on QE. So this comment told investors that firstly there is unity on the governing council and Draghi is very much the boss and that also there is now an increased likelihood of more stimulative action in the pipeline. The main mover off this development was the Euro which sharply sold off 100 pips. Stocks rallied strongly although didn’t manage to hold on to the gains. Overall Draghi surprised us somewhat and managed to deliver a reassuring message that the ECB will do everything it takes to avoid deflation and return the region to economic growth.

Today's Fundamental View

Today, focus switches away from the ECB and falls squarely on the US employment report due at 13.30pm London time. There is an optimistic mood going into today’s all important Non-Farm Payroll number and this is because labour market data of late has continued to come in very strong. Jobless claims yesterday printed 278k making the October 4 week average the lowest since well before the credit crunch. The ISM employment components have remained very strong. Consumer confidence data has lifted to pre-crisis levels. ADP employment beat expectations. All this points to a very solid October payrolls report with consensus forecast at 235k but we at Amplify have a more bullish view with a figure well above 250k quite likely. The big outlier would be if this data comes in above 300k because in this scenario the attention would strongly swing back to the situation where the Fed hikes rates a lot earlier than current predictions. Equities could well end the day lower if the data is too strong. The Dollar has already strengthen dramatically in recent months and so we feel that T-Notes is the asset that is most vulnerable to a strong NFP print. Attention also needs to be paid to the average hourly earnings numbers for signs of faster wage growth which again will increase rate hike fears.

Alternative View

Really bad payrolls data will lead to profit taking in the Dollar.