Mixed trading ahead of today's non-farm payrolls

Friday, October 02, 2015

Asian trading was mixed overnight following a cautious session on Wall Street yesterday as investors assessed the day's economic data releases. There was plenty to engage investor attention with eurozone PMI data on the whole suggesting the outlook for the region was cautiously optimistic. Attention quickly shifted to US data with initial jobless claims for the week ending September 26th coming in at 277K, slightly above expectations and 10K more claims than the previous week. Investors were generally upbeat about the data as claims held around multi-year lows with continuing claims dropping back to levels last seen in 2000. Trading overnight was mixed as investors positioned themselves ahead of today’s labour market data, with non-farm payrolls expected to add 201K positions in September while investors expect the unemployment rate in the US to hold steady at 5.1%. Any surprise deviation from these expectations could either bolster or weaken the case for a rates rise this year.

The Bank of England may have a stronger case for an incoming rates rise as yesterday’s release of the final Markit manufacturing PMI reading for September held firmly at 51.5 with last month’s reading revised up slightly to 51.6. Market participants hope that the solid growth in manufacturing activity for the year so far will see inflation slowly return after sluggish demand and interest rates which have persisted at record lows for the past several years exert considerable deflationary pressures on the UK economy. Signs of inflationary pressures are already starting to show with the ONS releasing data yesterday which saw unit labour costs rising 2.2% at an annualised rate during the second quarter, up from 0.3% the previous quarter. Lower crude prices have contributed significantly to the disinflation that has plagued the UK but with labour costs rising and wages accelerating we could see an increasing number of MPC members adopt a more hawkish approach to the interest rates decision over the coming months.

Spot gold prices extended declines for a fifth straight session yesterday and are on track to extend the bear run for a sixth straight session as investors position themselves ahead of today’s labour market data. Market participants are priming themselves for the first interest rate rise in the US since early 2004 and after rallying strongly towards $1,157/oz throughout the second half of September on a rush to safety gold prices have given back most of these gains, losing almost four percent over the past six days as the yellow metal targets $1,109/oz early on. A strong USD has exacerbated the situation with the dollar index holding firmly above 96.270 over the past week. Today’s jobs data will be watched very closely for any inference on Fed policy.

Continuing claims in the US hold near long term lows

INJCSP Index US Continuing Jobl 2015 10 02 07 56 49

UK manufacturing PMI steady at 51.5 in September

MPMIGBMA Index Markit CIPS UK M 2015 10 02 08 19 04

Gold prices extend losses ahead of non-farm payrolls

XAU Curncy Gold Spot Oz D 2015 10 02 08 32 35

Events for today

CN Market Holiday 

0930

UK

Aug

Markit/CIPS Construction PMI

1000

EZ

Jul

PPI

1330

US

Sep

NF Payrolls & Unemployment

1445

US

Sep

ISM NY Manufacturing

1500

US

Aug

Factory Orders

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