For so many things in life, timing is crucial. In trading, get your timing right and the profits are there, get it wrong and this can lead to substantial losses. Donald Trump is a businessman at heart, so the timing of news of a potential trade deal being drafted between the US and China, just before the mid-term elections should come as little surprise. Markets are responding too. If it is true that a “long and very good conversation with President Xi” results in a G20 meeting and potential trade agreement, then months of fear and uncertainties surrounding a potential trade war need to be re-priced again. Although nothing is ever that simple with Donald Trump, equities in Asia have bounced sharply whilst Treasury yields are higher, whilst gauges of risk appetite in forex (such as Aussie/Yen) are increasingly risk positive. There is a sense of consolidation on the dollar so far, perhaps given the sharp losses yesterday and the prospect of Non-farm Payrolls today. However, should the Chinese yuan continue to recover against the dollar, then this should help to mitigate dollar strength from rising Treasury yields. This may all change though this afternoon if the payrolls report reflects increasing wage growth, which would once more pull expectation of rate hikes forward. For now though the market is “risk on”, taking the positives for once out of relations between the US and China.
Wall Street closed strongly higher with the Dow over 1% higher and the S&P 500 +0.8% at 2758, whilst futures are ticking for similar gains early today. Asian markets were strong across the board, with the Nikkei +2.5% and Shanghai Composite also +2.5%. Gains are also being seen across European markets early today, following the sort of numbers seen on Wall Street higher. On forex markets there is a risk positive feel in front of payrolls, with the sizable gains on the Aussie and Kiwi again, whilst sterling is perhaps understandably catching breath after huge gains yesterday. The consolidation on the dollar today is seeing a consolidation across precious metal commodities, with gold and silver around flat, whilst despite the improved risk appetite a beleaguered oil is once again struggling.
With All Saints Day in Europe yesterday the continental PMIs have been delayed until today, with the final Eurozone Manufacturing PMI at 0900GMT which is expected to be confirmed at 52.1 again (flash 52.1, September final 53.2). However the main event on the economic calendar is the US Employment Situation report which is announced at 1230GMT (an hour earlier than usual in Europe as the US clocks are yet to go back). The headline Non-farm Payrolls are expected to be 190,000 which would be up from the surprisingly low 134,000 jobs growth for September. Watch out for potential revisions to the data too, given the impact of the hurricanes to hit the eastern seaboard. Unemployment for October is expected to stick at 3.7% (September was 3.7%) whilst U6 underemployment was 7.5% last month. The big focus will be on Average Hourly Earnings which are expected to grow by +0.2% on the month but due to a very weak October 2017 of -0.2% dropping out, the year on year reading is expected to jump to +3.1% which would be the highest earnings growth since mid-2009. Also watch for the labor