A sudden bout of selling pressure ripped through Wall Street yesterday to leave traders scratching their heads. Maybe stocks can go down as well as up after all? The tech-led decline was seen most significantly through a -5% decline on the NASDAQ, but with little real catalyst, it seems to be simple profit taking. As eye watering a decline as it may seem, it is important to note that the NASDAQ has simply unwound to levels of Monday last week. The question becomes how will traders respond now? A correction just shy of -10% was seen in June, but was a brief shakeout and just a set up for the next bull run. This has developed a sense of negative sentiment across markets, with bond yields falling and risk aversion hitting assets such as oil. Despite this, the near term dollar rebound has begun to stall, perhaps due to the upcoming Nonfarm Payrolls report today. Traders will be wondering whether this is now another opportunity to sell USD as the broad outlook for the dollar remains negative. A ultra-dovish Federal Reserve, backed by continued dovish Fed speakers (Charles Evans suggesting rates would not go up until inflation hit 2.5%) leaves the dollar under ongoing pressure. It is likely that jawboning from the ECB over the strength of the euro, and the perception of a “no deal” outcome from Brexit trade negotiations hampering sterling could now create an increasingly choppy outlook for major USD pairs. Focus will turn to payrolls later today, with the growth of jobs in the US economy continuing but signs of a slowing pace.
Wall Street closed sharply lower as big profit-taking pulled the S&P 500 -3.5% lower to 3455. E-mini S&P futures are falling by another -0.5%. This selling pressure hit Asian markets, with the Nikkei -1.1% and Shanghai Composite -1.0%. European futures are on the back foot too, with FTSE futures -0.6% and DAX futures -0.4%. In forex, there is a degree of consolidation coming ahead of payrolls, although a mild risk negative and USD positive bias is hinting. In commodities, gold and silver have found a basis of support from recent declines. The selling pressure on oil continues to develop, with another half a percent lower today.
The big focus for today on the economic calendar is the August US jobs report, with the US Employment Situation released at 1330BST. Headline Nonfarm Payrolls are expected to once more show good growth, with +1.400m jobs created (after +1.763m jobs gain in July). Although the ADP employment report again disappointed sharply to the downside on Wednesday, hopes are high for another positive payrolls. Unemployment is expected to improve and to drop into single digits again to 9.8% (from 10.2% in July). The anomaly of wage growth continues to show through, with Average Hourly Earnings expected of zero growth in the month of August, whilst the year o