Moving toward a Fed hike, non-farm payrolld the key

Quick Recap

It’s not long now. At 12.30am AEDT tomorrow morning we’ll have a much better indication if the Fed is going to hike rates at its mid-December meeting.

12.30am is when we get the release of the latest non-farm payrolls and unemployment data. The Reuters poll shows that the market is expecting a print of 180,000 jobs in October and an unemployment rate of 5.1%. That’s enough to lock in a rate hike unless something from way out on left field pops up.

David Scutt has a great preview  of non-farms over at Business Insider. But for me we had the clearest signal that the Fed is serious if the data holds up in a comment from Atlanta Fed president Dennis Lockhart last night. CommSec’s chief Economist Craig James reports this morning that Lockhart said the central bank was successful in shifting market expectations about the possibility of a rate hike at the December meeting. Lock it in Eddie!

Turning now to the actual data and events overnight and we can see that traders in the US were a bit more tentative in the run up to tonight’s release. The key move for me, the one everyone should be watching, but probably isn’t, is the US 2 year note. At 0.845% its incredibly low, but it’s also the highest it’s been since 2011. It can probably test 1% and if it breaks watch out in teh stock market.

On forex markets the Aussie dollar is in familiar territory this morning sitting roughly where it was this time yesterday. All the action last night was focussed on the pound after the Bank of England left rates on hold and suggested that given the inflation outlook they would stay there for a while. Sterling is down 1.1% to 1.52 and change. The Yen is drifting a little weaker but the Kiwi has fought back and regained the 66 cent level against the Big dollar.

On  commodity markets crude was sold heavily again down 2%, gold is at risk of slipping back under $1100 and copper capitulated losing almost 3% all the way back to $2.25 a pound. No doubt some of this selling is because in the past 24 hours both the RBA and the Bank of England have highlihgted fears about Chinese and emerging market growth. But also because any gains commodities are making in recent times just bring out the sellers again. Speaking of falls iron ore was lower again.

This is my last morning report and I would like to thank my readers, and the team at Go Markets, for letting me share my thoughts with you.

Good luck and all the best for your future in trading. I

The overnight scoreboard (8am AEDT, NB: US MArket close is 8am AEDT):

• Dow Jones Industrials +0.05% to 17,874
• Nasdaq Composite -0.25% to 5,129
• S&P 500 -0.05% to 2,101
• London (FTSE 100) -0.75% to 6,364
• Frankfurt (DAX) +0.39% to 10,887
• Tokyo (Nikkei)+1% to 19,116
• Shanghai (composite) +1.87 to 3,254
• Hong Kong (Hang Seng)-0.01% to 23,051
• ASX Futures overnight (SPI December)  -11 to 5,173
• AUDUSD: 0.7142
• EURUSD: 1.0873
• USDJPY: 121.75
• GBPUSD: 1.5206
• USDCAD: 1.3165
• Nymex Crude (front contract): $45.29
• Copper (US front contract): $2.25
• Gold: $1,103
• Dalian Iron Ore (January): 344 (denominated in CNY)
• US 10 year bond rate: 2.23%
• Australian 10 year bond rate: 2.74%

On the day

On the data front today we get the release of the RBA’s quarterly statement on monetary policy at 9.30am AEDT this morning. The AiGroup PCI will also be out at the same time.

In Germany tonight it’s Industrial production to follow last night’s disappointing -1.7% fall in factory orders. French trade is also out as is UK manufacturing data.

CHART OF THE DAY: GBPUSD – sitting on important support

Mark Carney tried hard in a Bloomberg interview to put a little two way into Sterling last night saying that people should still believe rates are going to rise in 2016.

But, the damage had already been done when he both held rates firm for the 80th month and the inflation report showed that there are no signs of inflation.

So Sterling lost more than 1% and is resting on the bottom of this little (big) wedge it has been trading in for a little while now.

Let’s respect the level for the moment but if 1.5170 break look out below.