There is a sense that at least for now, markets are beginning to settle down. With the monetary and fiscal responses all now known (although there could clear be a tweaking in the coming weeks), there are less volatile swings on a daily basis. The actions of the Fed have reduced swaps levels and whilst there is a lack of liquidity at certain points in the day (which can give rise to intraday spiking) there is a more measured feel to markets in recent days. Volatility on US Treasuries, US equities and also forex is reducing. Reaction to data today could be key, with services PMIs and the US jobs data on the docket. There was an initial spike of selling risk (and buying the dollar as a safe haven) yesterday on the latest massive jump in US weekly jobless claims, but markets began to settle down again into the close. So we come into Non-farm Payrolls Friday with major markets relatively calm and lacking direction. Perhaps the European PMIs will give some direction for risk, but the focus is on what sort of picture the labor market in the US is painting. However, there could be a degree of caution taken with the data today as it comprises up to 12th March which was before lockdowns were imposed in the US. This may reduce some of the negative surprise (ADP came in ahead of expectation on Wednesday). The other big news in the past 24 hours has been supposed developments in talks between Saudi Arabia and Russia over production cuts. Tweets and comments from Donald Trump have sent oil spiking higher, although the move is retracing today. Russia has suggested an OPEC+ meeting could be scheduled for next week. At least some movement in relations between two of the big three oil producers. Expect oil volatility to remain elevated in the coming days as comments, rhetoric and rumours hit the newswires.
A wild swinging session on Wall Street saw the S&P 500 closing +2.3% higher at 2526, but this gain is waning this morning with US futures -1.1%. In Asia a consolidation session with the Nikkei almost dead flat and the Shanghai Composite -0.5%. European markets are a shade lighter on futures, with FTSE futures -0.2% and DAX futures -0.4%. In forex, there is a shade of USD strength still poking through, with the underperformance of EUR still a factor, although markets are relatively settled ahead of payrolls. In commodities, gold and silver are a shade lower with USD strength, whilst oil remains volatile, giving back a further -2% this morning.
It is sure to be a big day for data on the economic calendar. Although the spread of Coronavirus is taking the focus, the data for March will begin to paint a picture of just how bad the outlook might be. For that we turn to services PMIs and the US jobs data. Services PMIs are up first for the Europeans. Eurozone final Services PMI is at 0900BST and is expected to be unrevised from the flash reading of 28.4 (down from a final 52.6 in February). This would leave the Eurozone final Composite PMI at 31.4 (again unrevised from the flash, final February 51.6). In the UK final Services PMI at 0930BST there is expected to be a downward revision to 34.8 (from the flash of 35.7, with February’s final reading at 53.2), whilst the UK final Composite PMI is expected to fall back further to 36.2 (from the flash of 37.1, with the final February at 53.0). The US Employment Situation for March is the main event of the day at 1330BST. Non-farm Payrolls are expected to deteriorate to -100,000 jobs (down from the impressive 273,000 for February). Unemployment is expected to begin what many see as a significant increase over the coming months, but only slightly in March to 3.8% (from 3.5%). Average Hourly Earnings are expected to be the one shining light on an otherwise dismal day of data, forecast to grow by +0.2% on the month and maintain the year on year growth at +3.0%. Later in the afternoon, the US ISM Non-Manufacturing reading is expected to decline back to 44.0 in March (from 57.3 in February).
Chart of the Day – German DAX
Along with other markets, the DAX has lost its recovery momentum in recent days. However, it is interesting to see that despite this (and a return of risk aversion), there has been limited selling pressure. There is a sense of caution though as the bears are scratching at the door once more. The recovery has stalled at 10,137 which has become a key resistance over the past seven sessions. A bull failure earlier this week has seen the recovery falter and the negative candles are beginning to take hold. Stochastics are beginning to lose their recovery momentum and RSI is struggling with its own rebound around 40. The near term support at 9455 was breached intraday yesterday and although this break did not hold into the close, it serves as a warning for today. A close below 9455 would imply a move back towards 8775. There is a gap still open at 9704 but this could be a bull trap if “filled”, so it needs to be “closed”. The hourly chart is beginning to take on a mild negative bias once more and there would need to be a pull above 9937 to suggest the bulls are strengthening enough for a decisive move on 10,137 again. Yesterday’s low at 9337 is initial support this morning as futures begin to point to early losses, with the next important support at 9200.
The euro is the worst performing of the forex majors in the past week. It remains under pressure today and looks to be set for further weakness. We have spent much of this week talking about downside breaks, and lower highs and lower lows. Once more today, the story is the same. Momentum indicators have turned corrective across the board, with bear crosses on Stochastics (around 50) and MACD lines (under neutral) whilst RSI is falling into the low 40s. A run of decisive negative candles is growing and intraday rallies are a chance to sell. The 23.6% Fibonacci retracement (of $1.1492/$1.0635) at $1.0835 is an initial basis of support/consolidation point, but if this were to be breached decisively then a full retracement back towards $1.0635 should not be ruled out. The hourly chart shows the top completion under $1.0950 which implies a target area of $1.0750/$1.0760 which is the next support area. With support around $1.0900 breaking yesterday, this has been retested and held as resistance, so there is a key area of near term sell-zone for any technical rallies now between $1.0900/$1.0950. This week’s downtrend sits at $1.0930 this morning. The hourly RSI suggests rallies are failing between 50/60 now, again sell-zone territory. Initial support under yesterday’s low at $1.0820 is at $1.0785 and then towards $1.0750.
Cable continues to trade in a tight range. A string of uncertain candles in the past few sessions has finally seen the market begin to settle down. In a period of four days, trading has been between $1.2250/$1.2485 as the candlesticks have become increasingly indecisive (with small real bodies). There is still a slight positive bias to daily momentum indicators (with Stochastics and MACD lines still pulling higher), but with RSI moderating around 50, the steam has been let out of the rally. There has also been a significant reduction in daily volatility in recent sessions, with Average True Range falling from 350 pips back to 300 pips today. It would suggest that once the consolidation is broken, then the potential move could be sharp and decisive. We still look towards trading a breakout of this range and the hourly chart shows that $1.2300 pivot (which is also the 50% Fib on the daily chart) is the real basis of support to watch today. A decisive break of $1.2300 (preferably a closing break would be a downside break and imply -185 pips. However, for now, this is a waiting game (perhaps for payrolls but also the services PMIs could play a key r