Risk assets saw a slow drift lower overnight as traders square positions ahead of Friday’s critical data releases. These will come in the form of the US Non Farm Payrolls and Unemployment rate and other macro reports this week have led analysts to revise their estimates higher, with the consensus now expecting a rise of 125,000 new jobs for the month of November. In the Euro area, German Chancellor Merkel will also receive some attention as she makes comments defining the role and authority in the ECB in solving the Eurozone debt crisis.
The main story in equity markets yesterday was the initiation of government lawsuits against JP Morgan and Citigroup (stemming from unfair foreclosure practices) and this led the financial sector of the S&P 500 lower. This story was balanced, however, by the positive US ISM manufacturing figure that came in for November. The major stock indices were mixed but showed little change from the previous session, on major declines in volatility (relative to what was seen at the beginning of this week).
European markets are showing increases in the futures markets and we will see some macro releases before the US open. These will be seen with the Eurozone PPI and Swiss Retail Sales, so with these on schedule, we could see some choppy trading into the New York session, which is when we could very well seen an explosive end to the week.
The balance of the evidence so far is suggestive of a very strong Non Farm Payrolls number, as the ADP employment report released on Wednesday showed that the private sector added 206,000 jobs for the month and the Weekly Jobless Claims have recently fallen to the lower end of its 3-month range. If these forecasts do prove to be accurate indications of the government payrolls release, we should see some follow-through on the holiday spending rally that was seen at the beginning of the week. Expectations, however, are starting to reach lofty levels, so an upside surprise might be more difficult to achieve than a disappointment.
Most of the major stock indices in all regions have broken significant psychological levels in the past few weeks, so if we can expected these elevated levels to be maintained into the close of the year, we will need to the data that is supportive of these rallies. With this in mind, today’s figures will be viewed as vital for risk sentiment for the remainder of this year.
The AUD/USD is consolidating within a broad symmetrical triangle on the daily charts and we are also seeing prices stall at key Fibonacci resistance at 1.0330. Sell entries can be initiated at these levels but any break to the topside should see some significant follow-through. Keep stops tight into the end of this week.
The FTSE continues its strong rally and prices are now approaching major long term trendline and historical resistance at the 5630 level. A break here will send prices at least to a test of resistance at 5750 before any renewed selling can be expected. A trendline break will suggest that a medium term bottom is in place at 5070.