Cheaper oil and a stronger US dollar continue to weigh on the UK’s stock market. The FTSE 100 has been aggressively drawn below 6800p following the opening bell in London, before, as forcefully, bouncing back to turn the session’s performance positive. The high volatility is a sign of stress. Mining stocks and energy companies remain the most sensitive sectors as the barrel of WTI is heading towards $45.
On the UK’s political agenda, PM May assembles her cabinet to discuss the Brexit today. We do not expect any specific price move related to this meeting. US jobs in focus
US jobs data is the main macro focus of the week. The markets are pursuing an approval to back up Janet Yellen’s hawkish stance on the macro front.
The rising conviction of a stronger US dollar keeps the pressure intact on oil, metal and global commodity markets, as well as on the high beta currencies and the emerging markets. The ADP employment report in the US will give a foretaste of Friday’s nonfarm payrolls (NFP) to come. The consensus is 175’000 private jobs added in the US during the month of August, versus 179’000 a month ago. Nevertheless, the correlation between the monthly changes in the ADP report versus the NFP has been historically low.
In this perspective, and given that the market is mostly driven by the Federal Reserve (Fed) hawks, we could expect an asymmetric reaction function to today’s ADP data. A strong ADP print should give a good reason to underpin USD demand. Yet in case of disappointment, the sell-off in the US dollar is expected to remain limited pre-Friday’s NFP figure. Gold is sitting on $1310
The strong US dollar story has taken its toll on gold prices. The precious metal traded below $1310 (July support) in New York yesterday. There is a rising possibility of a further dip at $1300 / 1297 (100-day moving average / minor 23.6% retracement on Dec’15 – Jul’16 rise). Macro funds are expected to gradually decrease their gold exposure to move towards the low-risk USD-denominated assets with improved yields.