Stocks mixed after data and ECB, ahead of NFP

Headlines

* ECB cuts rates as expected, Lagarde cagey on next steps

* EUR/USD holds steady above 1.0850 post ECB and sources stories

* US non-farm payrolls data forecast to signal moderate slower momentum

* Gold hits two-week high as yields steady near recent lows

FX: USD traded in another relatively choppy range, tracking just under the 200-day SMA at 104.43. The weekly initial jobless claims figure hit an eight-month high. This hints at a softening labour market. All eyes are on NFP. Support is this week’s low at 103.99. Lose this and next support is 103.56.

EUR closed higher on the day after the ECB cut rates for the first time since 2019. The bank avoided giving any forward guidance and said it would be data dependent and take decisions on a meeting-by-meeting basis. Sticky inflation is the kicker and may limit more rate cuts in the near term. Markets became very slightly more hawkish with a December rate cut now 50:50. (56% before the meeting). But the ECB’s fresh forecasts do see more rate cuts in time. Resistance sits at 1.0916 with very strong support around 1.08.  

GBP is consolidating near 10-week highs just below 1.28. A BoE survey reflected cooling wages and price pressures.

USD/JPY lower on the day, after a couple of choppy sessions. Prices sit just under the 50% level of the April/May high/low at 156.03. BoJ Governor Ueda said it would be appropriate to reduce bond buying as it moves towards an exit of monetary stimulus.

AUD continues to track around 0.6650. CAD calmed, trading just below 1.37. The major is still stuck in a 1.3650 -1.3750 range. Markets are still slightly reluctant to price in more than 50bps of more easing for this year. A July rate cut is given around a 58% chance. Canada employment data is forecast to show more solid job gains.

US Stocks: Indices were mixed and relatively quiet ahead of the jobs report today. The S&P 500 finished flat at 5,353. The Nasdaq 100 settled very marginally lower at 19,021. The Dow closed in the green by 0.2% at 38,886. Both eh S&P 500 and Nasdaq both made new record intraday highs. Tech posted losses (-0.47%) while energy rebound. Nvidia moved around 5.5% intraday, which is a market cap of around $150bn. Some analysts are talking about a blow off top for Nvidia after the recent stock split news. They cite Apple as reacting in a similar way and would play into Wednesday’s FOMC meeting.

Asian Stocks: APAC futures are mixed. Asian stocks traded firmer after the positive lead from Wall Street. The ASX 200 was higher on gold and tech gains. The Nikkei 225 surged initially through 39,000 but gave back some of the advance. Autos continued to get hit while tech carried on higher. China stocks were varied again and relatively contained.

Gold finally broke out and higher. Bond yields tried to steady but seem to be consolidating after a series of days lower. All eyes are on today’s NFP report.  

Day Ahead – NFP Day

Consensus expect the headline non-farm payrolls t add 180,000 jobs in May. Average hourly earnings are forecast to increase 0.3% m-/m, with the y-/y rate holding steady at 3.9%. The unemployment rate is likely to be unchanged at 3.9%, with the labour force participation rate holding steady at 62.7%.

Some economists think there could be a bounce back in the headline due to the prior print being affected by the early Easter holiday. An inline print may feel good for markets, and they might react positively as it’s another reading that brings the longer-term averages lower.  Obviously, next week we have the FOMC meeting and fresh economic projections and dot plots. Economic data since last month has shown a very gradual slowdown. Just less than two rate cuts are currently priced in for 2024.  

Chart of the day  – Gold upside breakout

Gold’s recent range trading had found support on dips over recent sessions with the 50-day SMA acting as decent support. This has now risen to $2340 as yesterday saw prices break higher and out of the sideways trade. Bond yields have fallen sharply in recent days with the 10-year Treasury dropping from 4.63% to 4.27%. That’s a big move and one expect the dollar to perhaps have sold off and boosted bullion more.

 NFP could give the precious metal a lift if the report is softer than expected. Prices have burst through the midpoint of the recent low to high May move at $2363. Next upside level is $2384 before spoke highs in April at $2417. Support is the 50-day SMA and recent lows around $2314.