It is interesting to see how different markets are responding to the elevated levels of volatility, uncertainty and fear. Equities have been seen to bear the brunt of selling pressure in recent days, with S&P 500 options volatility (the VIX) spiking way above 20 yesterday and wild swings on equity markets. However, according to the Wall Street Journal, these market moves may not be going unnoticed at the Federal Reserve, which could be set to hike rates once more in December, but then be open to considering its options. The inversion of part of the yield curve is seemingly having an impact, but the fact that Wall Street bounced sharply into the close in unlikely to be the end of the market concerns. Although volatility in Treasury yields may have caused havoc through equities, it has done relatively little to impact on forex. There are question marks over how it will impact on the US dollar, whilst reduced risk appetite is the main impact on forex right now. Subsequently, it is interesting to see EUR/USD relatively settled, whilst the Aussie dollar has been sold sharply, and sterling traders continue to trade pretty much exclusively off Brexit headlines. How Non-farm Payrolls adds to this whole picture is an intriguing factor. The dollar is likely to trade in its usual direction with any surprises, but how risk sentiment is affected could be perceived in different ways. If yesterday’s Wall Street reaction to the Fed potentially holding off from rate hikes is anything to go by, then a negative report could be positive for risk. However, in these uncertain times, with traders’ heads already spinning, anything could be possible.
Wall Street closed an incredible session in mixed territory, with the S&P 500 -0.2% at 2696, with futures a shade lower again at -0.2%. Asian markets took the Wall Street rebound to close broadly higher (Nikkei +0.8% and Shanghai Composite flat). European markets are going for a sharp rebound with FSTE 100 futures and DAX futures both around +1% higher. In forex, there is a mild edge of dollar outperformance in front of Non-farm Payrolls but little real direction so far. In commodities, gold continues to inch higher, whilst oil is a percent lower amidst uncertainties over OPEC production cuts.
The focus for traders today will be Non-farm Payrolls, but in the morning, first up is the revision for Eurozone GDP in Q3 at 1000GMT which is expected to stay at +0.2% (+0.2% in prelim). The US Employment Situation for November is at 13330GMT with the headline Non-farm Payrolls expected to be +200,000 (down from last month’s 250,000). Aside from jobs growth traders will be looking out for wages growth with Hourly Earnings Growth which are expected to grow by +0.3% on the month, which would hold the year on year growth at +3.1%. The Unemployment rate is expected to remain at the Fed’s 2018 projection of 3.7% (3.7% in October), whilst it is also worth watching the U6 Underemployment