Today we have the largest tier-1 data package of the month

Fundamental View

Yesterday was relatively quiet as the majority of market participants await today’s batch of data releases. We saw the meeting between Schauble and Varoufakis deny any enthusiastic moves stemming their comments. We also witnessed many traders pricing in an agreement between the Troika and the Greek Government, evident in the reversal of the sell-off we had in the morning in both the Euro and the majority of bourses. Although the Finance Ministers agreed to disagree we did not see any dramatic change in rhetoric and so risk surrounding the Greek political developments seems to have abated. Nonetheless traders are still actively encouraged to keep this on their risk-radars. US equities rallied into the close of the trading session, following crude higher as many see the correlation between the two to remain positive. Jobless claims were presented better than expected with continuing claims in-line with market consensus.

Today’s View

Today we have the largest tier-1 data package of the month; Non-farm payrolls features alongside Average hourly earnings and the Unemployment rate. There are several factors at play for the session ahead. The headline figure has the potential to be lower, likely due to the number of Christmas temp. shift workers return to unemployment after the conclusion of the festive period. The best case scenario, assuming a slight draw down in jobs creation and supported by lower than expected ADP results, is that hourly earnings show a build representing the rest of the jobs being of a superior quality. If Average Hourly Earnings prove to be disappointing it is likely that we will see dollar weakness, a confused reaction in equities as bad news proves to be good news and rate hike speculators become more involved, and Treasuries move to act as a haven asset. The unemployment rate, currently standing at 6.60%, is expected to increase to 6.7% and pull further away from the FOMC’s now unspoken 6.5% target. With US GDP growth in decline and a stronger dollar hurting corporate earnings this has been agreed by many to be the start of a contractionary period.

Alternative View

Although the headline figure is important it is likely that the Average Hourly Earnings will be read with more significance than usual. Traders should clear their positions before the data, avoiding any holds over the release period.