Joshua Mahony MSTA
Scope Markets
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Hesitant markets grind lower pre-NFP
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Jobs report is make or break for June hike
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RBA inflation cut raises easing expectations
European markets are trading marginally lower this morning, as overnight weakness in Chinese markets has sought to prolong the losses that have characterised this week. A strengthening of both the gold and yen havens pointed towards a clear degree of anxiety amid a low volume environment that is typical for a US jobs day. As we tiptoe towards a crucial payrolls number, there is a feeling that today’s release could be make or break, for indices, the US dollar and the possibility of a June rate hike.
The US jobs report represents the one dominant event on the mind of every trader today, with volatility largely guaranteed regardless of the figures. ADP weakness earlier in the week points towards possible disappointment, which if true would knock the chance of a June rate hike. However, with strong economic data elsewhere this week, a strong jobs report would negate the ADP figure and makes June a distinct possibility for a second Fed hike.
The RBA cut its core inflation expectations overnight to 1-2% from 2-3%, citing 'surprisingly low wage growth'. While a subsequent rally for stocks and weakness for the Aussie dollar reflected shifting sentiment, the most notable market adjustment came with an upward repricing of near-term rate cut expectations in both June (28%) and August (57%) meetings. Clearly we have not seen the end of the easing cycle in Australia despite recent improvements in trade and jobs data.
Ahead of the open we expect the Dow Jones to start 30 points lower, at 17,630.
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