US Opening Call from Alpari UK on 2 August 2013
Markets pause ahead of key US jobs data
Today’s US opening call provides an update on:
* US futures flat as caution returns to the markets;
* NFP has tendency to beat market expectations in 2013;
* Unemployment rate also in focus as it nears Fed threshold.
European indices are trading slightly higher on Friday, while US futures are pointing to a flat open as caution returns to the markets ahead of the US jobs report for July.
So many times this week we’ve seen traders take a back seat and prepare for surges in volatility, only to be disappointed. We’ve had meetings of the Fed, ECB and Bank of England this week and each of them has been an extremely dull affair, with none of the above giving anything new away. The most disappointing of the lot was the ECB press conference yesterday, where ECB President, Mario Draghi, conceded that interest rate cuts and forward guidance thresholds hadn’t even been discussed.
Thankfully there’s been plenty of economic data released this week to help give the markets a bit of energy, while corporate earnings season has also helped. The lack of volume in the markets over the summer months hasn’t helped things over the last few week, although we have seen some improvement here this week.
I doubt we’ll be disappointed today though because irrespective of what number we get. With the Fed looking to taper in September or December, and traders appearing split on which they think it will be, whatever number we get is sure to get a response in the markets.
Current expectations are for a figure around 184,000, just short of last month’s 195,000. However, when you take into consideration the number of times we’ve seen above forecast figures this year, and the ADP figure of 200,000 released Wednesday, another beat here today looks on the cards.
While we have seen markets focus more on the fundamentals recently, and therefore buy on strong data even if it increases the probability of Fed tapering, it is still uncertain whether a strong jobs report today will have the same impact.
Traders bought into the slightly dovish Fed statement on Wednesday, which suggests that while they are more focused on the fundamentals, they still favour a scenario in which the Fed injects $85 billion per month into the financial system for as long as possible.
The unemployment rate will also be watched closely on Friday, given the Fed’s threshold of 7.5% to taper asset purchases and 6.5% to raise interest rates. Market expectations are for a drop to that 7.5% threshold today, although I can’t see it. It doesn’t appear to take into consideration the inevitable upward pressure that an increase in the participation rate would have on the unemployment rate.
The finer details in the report will also be important, including the number of part time and temporary jobs that contribute to the non-farm payrolls figure. We’re already seeing these contribute to the number of jobs added a lot more than is healthy. If the Fed withdraws its support, these will be the first to go and the unemployment rate will spike again.
Ahead of the open we expect to see the S&P down 1 point, the Dow down 5 points and the NASDAQ down 1 point.
Read the full report at Alpari News Room