Financial market research and analysis

Enthusiasm for US stocks was short lived overnight as concerns over inflation returned to haunt investors. The S&P500 and Nasdaq failed to cling onto early gains, closing down 0.1% and 0.4% respectively, despite solid revenue growth from Facebook, whose share price hit an all-time high soon after the open. Meanwhile the Dow closed just 37 points higher at 26,186, even though it had traded as high as 26,306 a few hours earlier.

After mixed sessions in the US and in Asia, European bourses are pointing towards a lower open, in a potentially quiet session ahead of NFP. After a strong rally in the pound during the US session overnight, to $1.4278 the FTSE could struggle under sterling strength. Any disappointment in UK construction pmi figures this morning could see the house builders under pressure.

Bond sell off deepens

The sell off in the bond market deepened again on Thursday, with US bond yields reaching levels not seen for 4 years. US 10-year treasury yields struck a peak of 2.79%, whilst the 30 year bond yield hit 3% for the first time in 8 months. The catalyst for rising bond yields on Thursday was a weak US productivity reading, which fell by 0.1%, versus an expected increase of 1%. Low productivity theoretically lends itself to higher inflation expectations, which spooked the market.

Once again a rising bond yield failed to push the dollar higher and the greenback sold off. The dollar has traded lower for three sessions versus a basket of currencies, however it is seen reversing losses in the Asian session and moving into the European open on positive ground as it brings 89.00 back into target.

NFP 180,000 jobs forecast

The dollar will continue to be in the spotlight today as the US labour department jobs report is due for release at 08:30 EST. 180,000 new jobs are expected to have been created in January, up from 148,000 created in December. However, given that unemployment is so low, 4.1%, this headline jobs creation figure could be discounted. Instead market participants are likely to focus firmly on average wage growth, which is expected to remain constant at 0.3% month on month and tick higher on an annualised basis to 2.6%, up from 2.5%.

Last month the headline figure undershot, but earnings proved to be a saving grace, growing 0.3% more than expected. This month, the signs are pointing to a strong headline figure after encouraging private payroll numbers and with key data indicating further economic growth. However, the big question is whether earnings will be able to live up to expectations, especially given the current focus on inflationary pressures, as the Fed weighs up tightening economic policy. Wage pressure still remains muted; however, we don’t expect it to surprise to the downside.

The dollar has been, despite support from rising inflation expectations and a slightly more hawkish Fed. Any disappointment in today’s earning figure could see the dollar sell of heavily into the weekend.

Pound looks to Construction pmi

The weaker dollar in the previous session, in addition to optimism over a potential Brexit customs deal helped the pound climb higher for a third straight session on Thursday. GBP/USD hit a high of $1.4278 in the previous session, despite slightly weaker manufacturing pmi. Prior to NFP data this afternoon, pound traders will loo towards construction pmi this morning. The reading is expected to show a slight tick towards to 52 in January from 52.2 in December. A weaker reading could not only weigh on the pound, but also put pressure on the house builders in today’s session.

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