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Wall Street recovers from heavy early losses: Europe points higher
A moderating of growth in the US service sector, concerns of no easy win in the Chinese US trade talks and a few disappointing corporate updates was enough to send Wall Street lower on Thursday. However, the US indices picked up later in the session, closing well off the day’s lows, with the Dow actually managing to rally 400 points off the low to eke out a positive close.
Attention will be on Eurozone retail sales early on. Retail sales are expected to have increased slightly from 1.8% in March to 1.9% in April. Given the weak inflation data in the previous session investors will be particularly keen to see whether retail sales manage to hold up, at least offering some support to the sluggish inflation.
Dollar to push higher post NFP?
There is little doubt over what today’s main risk event is. Whilst the Fed informed the market on Wednesday that it will continue to hike rates gradually, there is nothing like NFP numbers to stir up the market.
Non-farm payrolls so far this year have caught investors off guard on more than one occasion; be that a blowout headline figure and weak earnings numbers, or vice versa. Today the April Labour Department report is expected to show a rebound in the number of jobs created, from a disappointing 103,000 in March to a much more acceptable 193,000 in April, in line with the average over the past 12 months. Data points this week such as a better than forecast number of private sector jobs added, plus weekly filings for unemployment benefits close to the lowest level in half a century, suggest that March’s soft figure could quite easily just be a blip in the road.
A stronger than forecast headline number could boost trader’s expectations that the Fed will step forward with their plans to hike rates gradually, potentially lifting the dollar to fresh four-month highs. Meanwhile unemployment could tick down to 4% after six straight months at 4.1% . Given that the Fed considered 4.5% to be full employment, anything below this should technically encourage higher wages and a raising of the interest rates. Finally, average earnings are expected to remain constant at 2.7% y/y. Keep in mind we don’t want any big shocks here, just think back to the beginning of the year when wages jumped higher, US treasury yields soared causing a sell off in equities in to correction territory. Any earnings jumps need to be gradual to prevent a shock to the market
Dollar index to 93.00?
Moving into the NFP report, the dollar was seen just easing back slightly from Wednesday’s high of $92.82. Whilst on the whole, data for the US has been very promising, the slightly softer than forecast non-ISM figures on Thursday, against a backdrop of trade tensions made sure any dollar gains were capped. A solid NFP could see the dollar target 93.00 versus a basket of currencies.
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