Haven bid hits stocks ahead of NFP

Headlines

* Stocks wipe out gains before jobs as oil rallies to $90

* Fed’s Kashkari says no cuts in 2024 if inflation stalls

* Battered yen stabilises as dollar hits two-week lows but rebounds

* Gold consolidates near all-time high just below $2,300 on rate cut hopes

FX: USD fell for a third straight day and below 104 before rebounding off its 50-day and 200-day SMAs. We last saw a longer losing run in early March. Treasury yields again edged lower after the 10-year yield spiked up to 4.42% on Wednesday. Fed comments were net hawkish and geopolitical concerns out of the Middle East were evident. The greenback has soft seasonals in April. All eyes are on today’s US jobs report.

EUR moved north for a third day in a row but gave back gains late on. The world’s most popular currency major is trading right on the 50-day and 200-day SMAs at 1.0833/34. PMI Services data was revised higher with the region’s composite now above 50 after the flash 49.4 reading. The ECB Minutes on balance strengthened the case for a June rate cut. The euro had retraced more than half of its losses from the March sell-off. A strong weekly close could seal a bullish outside reversal candle.

GBP lagged on the day. Final PMI data was revised lower with services now the lowest since November. The BoE’s Panel Survey saw a drop in inflation expectations and lower wage deals going forward. The 50-day SMA is 1.2668.

USD/JPY continued to track sideways in a very tight range for most of the session before the yen saw a safe haven bid and the major moved lower. There were various former FX chiefs from the Ministry of Finance on the wires, with conflicting views around the level of intervention. (152 or 155?)

AUD bounced for a third consecutive day but retraced after trading above 0.66. After printing a bearish outside day yesterday, USD/CAD dropped below its 200-day SMA at 1.3501 before rebounding. Consensus sees 20k job gains in March in today’s headline employment print. The unemployment rate is predicted to remain unchanged at 5.8%. The labour market remains robust with wage growth still relatively hot and well above the BoC’s 2% inflation target.

Stocks: US equities turned sharply lower ahead of the jobs report with nerves kicking in. Heavy selling saw stocks hit late on amid uncertainty over an Iran response to Israel’s attack. The broad-based benchmark S&P 500 finished 1.23% lower at 5147. The tech-dominated Nasdaq 100 lost 1.55% to close at 17,878. The Dow Jones settled 1.35% down at 38,596 and lower for a fourth straight day. The Vix, Wall Street’s fear gauge, got close to 17, its highest level since mid-February. Semiconductors were especially weak while Meta closed modestly in the green having hit a fresh record high. Alphabet lost 2.8% as Google said it was mulling adding “premium” features to its search engine using generative AI and charging for the service. Energy was the best performing sector as oil went through $90, though it finished very modestly in the red.

Asian Stocks: APAC futures are in the green. Markets traded better with stocks slightly bid, though the China holiday affected liquidity. The Nikkei 225 outperformed helped by the continued weak yen. The ASX 200 was boosted by gold miners with the spot price through $2,300.

Gold pared gains with the first down day in seven. Prices remain overbought on numerous measures.

Day Ahead – NFP incoming

There’s a lot of focus, as usual, on the monthly US jobs report. Markets are sticking to a first Fed rate cut in June, but bets on total policy easing for the year have remained below the Fed recent median dot plot of 75bps for most of the week. For the data, consensus sees headline NFP at a more trend-like 212,000 in March. This would be lower than the 275,000 in February and the 12-month average of 229,000.

Markets will be on guard for revisions again, after the big negative adjustments (167,000) in January and February. This effectively left the net headline figure with just over 100,000 job gains in March. Average hourly earnings are expected to tick up to a more normal monthly pace of 0.3%, following the very weak February print of 0.1%. The unemployment rate is predicted to stay below 4%.

Chart of the Day – Soaring Gold faces NFP

Gold has been on a tear and hit yet another record high on Wednesday with spot gold breaking above $2,300 for the first time. The strength in the market came after the US ISM services index printed lower than expected. Comments from Fed Chair Jerome Powell also likely helped. He stated that recent strong macro data does not materially change the overall picture when it comes to monetary policy.

Markets are still expecting the Fed will start cutting interest rates in June. However, these expectations could change after today’s US jobs report. A strong set of data will potentially push yields and the dollar higher, impacting gold. A softer headline and details could further boost the precious metal’s rally beyond $2300. Focus will then turn to next Wednesday’s CPI release. The monthly reading expected of 0.3% is still too high for the majority of policymakers.

AUTHOR

Jamie Dutta >

Jamie Dutta is a Market Analyst for Vantage. He comes with extensive experience as a full-time trader and financial market commentator, having worked as a trader in top tier investment banks and trading houses.