Equities have found some support around their lows, as investors tentatively dip their toes back in the market. Whilst the Dow is still below its 20-day moving average and has found a bit of resistance around the 10300 level, the European indices are ground and leading the way higher, in some circumstances not too far from their highs of April, with the German Dax a mere 3% away from its 2010 high (the FTSE is still 10% away).
Despite the small gains of the morning, there are plenty of warning signals out there. The recent gains have mainly come from more defensive stocks and this morning it’s a mixed bag with the riskier assets struggling to lead the way forward. On top of this, bond markets are still nervous with yield spreads widening and Libor rates are around levels similar to those of Lehman times.
There’s no question that investors are a little apprehensive this morning, ahead of the day’s main event. Non-farm payrolls due out at 13h30 London time and are due to post their biggest monthly gain since almost twenty-seven years. A lot of these are down to the US government dishing out hundreds of thousands of part time jobs, so the market will be focusing more on the private payroll number, which after all is the key to the sustainability of the US’s economic recovery as once the government stimulus has dried up, the private sector will be steering the ship. While the overall NFP number is due to post a rise of 500k, the private sector figure is expected to contribute almost half of this with 210k new jobs. A good chunk of these gains are expected from the manufacturing sector. As a result, the overall unemployment figure is due to edge downwards to 9.8% from 9.9%, but don’t be surprised if this improves further to 9.7%.
Technical levels in the FTSE are resistance around the 5300 area to the upside and to the downside support is seen around 5090 then 4900. For the Dax, which has been much stronger than other indices as mentioned above, immediate resistance is at 6125 and then 6180.
Currency markets have been rather flat so far this morning. Surprisingly, it’s the euro that’s just coming out on top despite weakness yesterday. Still languishing around its four year lows, the big fallout and drive to the 1.1 levels has yet to materialise, so the congestion around the current levels is giving the single currency a degree of support. Clearly FX traders are sitting on the sidelines ahead of NFP, but it’s difficult to see if there’s any shock to the upside might that it might lead to such a substantial more lower for the euro. What’s more likely to contribute to the next leg down, should it come, is the meeting of the G20 finance ministers over the week end.
USD/JPY continues to edge higher, just below 93.00, which is the next level the bulls will be targeting, before wanting to have a look at 95.50 should there be enough momentum behind the dollar and as mentioned a better than expected number at NFP might give the dollar another boost.
Gold suffered a bout of profit taking yesterday, and is a few bucks in the red this morning. 1200 is expected to provide some support for the precious metal, but a break below here could mean a return to 1180 and if that doesn’t hold up then bears will be aiming for the 1165 area from which the recent little run higher commenced.
Crude is flat after the modest gains made yesterday, following the inventory numbers showing a decline in stocks. Just below $75 now a bit of strength has returned to the market since hitting $70 back in mid-May and bulls will be looking for a close above $75, with their next target being $77.