News & Analysis

Dow claws back 400 point drop – Europe lower; Oil reclaims $68; JPY slams EUR after CPI miss. Eyes move to tonight’s U.S employment data

May 4, 2018 | Daily Market Outlook

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U.S Employment data
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Ôû©22:30 USD Non-Farm Employment Change EXP 190K
Ôû©22:30 USD Unemployment Rate EXP 4.0%

US markets – fought back from a strong mover lower last night. The Dow Jones edged out a 5.17-point gain by the closing bell after falling nearly 400 points in morning trade. “The market got very cheap and buyers just came in,” said Jeremy Klein, chief market strategist at FBN Securities. “I mean you’ll still seeing sectors like banks lag … [but] industrials had a really nice bounce.”

All of the big three indexes recovered after sharp morning loses. The NASDAQ was helped by recoveries in Amazon and Apple and Microsoft. Tesla reported better-than-forecast quarterly results Wednesday after the close. However, the stock fell 5.5 percent after CEO Elon Musk dismissed questions from analysts regarding gross margins and Model 3 production.

China trade talks started yesterday before the talks were set to take place in Beijing, the mood between the world’s two largest economies worsened amid reports the U.S. administration is considering taking executive action to restrict some Chinese firms’ ability to sell telecoms equipment. In other data news, the ISM Non-Manufacturing PMI missed expectations coming in at 56.8.

The Dow Jones added 5.17 points. The S&P500 lost 5.94 points and the NASDAQ closed 12.75 points lower.

European markets – pulled back after Wednesday’s strong gains. Eurozone inflation unexpectedly declined in April, raising questions about the European Central Bank’s plan to scale back its stimulus program. The European Commission said in its spring economic forecast that the economy was more exposed to external risks like volatility in the markets. Logitech jumped 6.5 percent but Adidas dropped 6.8 percent following its first-quarter results. U.S – China trade talks were also a main focus during the European session.

The FTSE closed 40.51 lower. The DAX gave back 112.10 and the CAC closed 27.56 lower.

Oil – bounced back above $68 overnight, boosted by OPEC production cuts and the potential for new U.S. sanctions against Iran. Oil at one point did test its opening price before rebounding after equity markets fought back. “The price move today is probably based off Iran and the tight oil supply market that we already have,” said Rob Thummel, portfolio manager at energy investment manager Tortoise Capital in Leawood, Kansas.

Iran’s foreign minister said U.S. demands to change its 2015 nuclear agreement with world powers were unacceptable as a deadline set by President Donald Trump for Europeans to “fix” the deal loomed. Trump has all but decided to withdraw from the 2015 Iran nuclear accord by May 12, sources said, though exactly how he will do so remains unclear. USOUSD closed at $68.34 locking in the range low test for now.

Forex – The USD was hit by profit-taking overnight, the only currency it made any type of headway to was the GBP. The EUR and AUD made good gains, the AUDUSD closing 40 pips higher. Lower CPI data took the edge off the EUR but it still added 39 pips to the USD. The USD fell to the CAD despite a strong fightback on a very disappointing Canadian trade balance that came in way below expectations at -4.1B, the market was looking for -2.3B. This was only short-term as sellers returned sending the USDCAD 34 pips lower. The range low held again, 1.2818 is a level to watch traders.

The USD fell to a surging Yen, losing 65 pips. The Yen knocked risk sharply lower last night. The AUD recovered from lows but the GBP and EUR both closed over 33 pips lower. The EURJPY was 97 pips lower at one stage. The GBPJPY briefly broke back into the 147 handle. Gold found demand off the back of a weaker USD, buyers added $7.80.

Tonight’s U.S Employment Data;

April’s jobs report to show strong hiring by corporations and a lower unemployment rate to hit 4 percent, for the first time since 2000. Economists expect a 0.2 percent pickup in wages, or 2.7 percent year-over-year. Zandi, who expects a slightly lower rate, said wages have been picking up. “They’ve got to normalize policy quickly. They’re still at three rate hikes this year,” said Zandi. “I think there’s going to be so much pressure for them to speed up the pace and go at least once a quarter.” Zandi expects to see 210,000 jobs added in April.

Barclays’ chief economist, Michael Gapen, said there’s an outside chance unemployment, at 4.1 percent since October, could fall even lower to 3.9 percent for April, though he has a forecast of 4 percent.

The jobs report could be another signal for the markets that the Fed will have to pick up the pace of rate hikes this year, as the U.S. edges toward full employment. Tonight’s U.S employment data will be released at 22:30 AEST

Good trading from Eightcap.

Sources; CNBC All times are AEST

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