Tariff exceptions and warming geopolitics sends stocks higher

Trump headlines, in one form or another, were largely responsible for overnight market movements. Firstly, Wall Street rallied as Trump added exceptions to his tariffs, namely “real friends” Mexico and Canada, easing fears of a trade war. Secondly, reports that Trump is due to meet with North Korea’s Kim Jong Un have boosted the geopolitical atmosphere sending Asian stocks skywards.

The Dow closed 0.3% higher, whilst the S&P500 and Nasdaq added on 0.4%. At the time of writing the Nikkei was trading over 2% higher as were stocks in South Korea. Flows out of the safe have yen can be seen with USD/JPY rallying 0.6% targeting 107.00

Given improving global sentiment on the back of easing trade war concerns and a warming geopolitical atmosphere, we expect European bourses to open firmly higher for the last session of the week. This would put indices across Europe on track for 5 straight winning sessions across the week.

The FTSE has rallied 1.8% over the past 5 days and could find itself well supported yet again today, should dollar strength and Brexit woes continue pulling GBP/USD lower.

EUR/USD stabilises $1.23 ahead of NFP

EUR/USD continued selling off for much of the US session as investors carried on digesting Draghi’s very cautious tone. Following the hawkish act of removing the easing bias, Draghi was sure to cover himself with a clearly dovish press conference, which sent the euro tumbling. EUR/USD is stabilising on support at $1.23.

NFP in focus

The central focus for today and the last big risk event for this week will be the US non-farm payrolls report at 13:30 GMT. Expectations are for 205k news jobs to have been created in February, a slight uptick from the 200k created in January. Meanwhile, the arguably closer watched average hourly earnings are expected to have slowed marginally to 0.2%, down from January’s 0.3%.

Most economic indicators across the month have pointed to potentially stronger NFP’s, for example the ADP payrolls were firmer than forecast just this week. However, the ISN non-manufacturing let the side down and points to a weaker reading today.

Even if NFP come in slightly weaker than forecast, this is unlikely to prevent the Fed from raising rates in March, a move which is already 100% priced into the market according the Fed Funds. Therefore, it would take a really disastrous report to have a hard-hitting impact on the dollar, something we consider to be unlikely.

Alternatively, should the NFP surprise to the upside, we expect the dollar to continue on its upward trajectory, potentially pushing EUR/USD back towards $1.2250 and USD/JPY back to 107.50.