Financial market research and analysis

Apple becoming the first $1 trillion company helped lift the tech stocks, mounting a recovery on Wall Street after a weaker start. Escalating trade tensions, after China promised a retaliation if Trump pushed ahead with higher tariffs, were soon overshadowed by a surge in Apple’s share price to $207.39 taking it to the magical $1 trillion. This has lifted the mood of the market, boosting the Nasdaq and the S&P to close in the black, Asian markets are on a bullish run and Europe is pointing to a higher start after the opening bell.

 

Pound Steady Ahead of Service Sector PMI

After the BoE’s dovish hike in the previous session, the pound is expected to stay in the spotlight in the morning session, with the release of the service sector PMI. Activity in the service sector is expected to have declined in July to 54.7, down from 55.1 in June, an 8-month high. As long as there isn’t a significant deviation from the forecast then the pound’s response should be measured as the PMI has been steadily increasing since March, so a slight pullback shouldn’t cause a big fanfare; a surprise to the upside is unlikely to produce a strong rally given the recent pushing back of interest rate expectations and the Brexit clouds gathering on the horizon.

 

Solid non-farm payroll looking likely

The main risk event today is the non-farm payrolls. The Labour Department’s jobs report will be released at 12:30 GMT. Expectations are for 192k jobs to have been created in July, slightly down from June’s 213k but nevertheless a solid, robust number. Meanwhile, unemployment is expected to have ticked back to 3.9% from 4% in June. Given the healthy numbers expected the main focus will be wages growth. Earnings are expected to have increased 0.3% month on month in July, above the 0.2% recorded in June, with earnings on a year on year basis growing at 2.7% for the third straight month.

Across the previous session, the dollar rallied 0.6% versus a basket of currencies, on the back of increased trade war fears and increased expectations of a strong non-farm payroll report following better than expected jobless claims. Data this month has been supportive of a strong print, however even if the headline figure is a little weaker, as long as the earnings number holds firm, traders will continue to assume that the Fed will proceed with one if not two more hikes this year, boosting the dollar.

 

GBP/USD over USD/JPY

Normally the USD/JPY is the preferred pair for trading the NFP, however, following the escalation of the US- Sino trade war, flows into JPY have been stronger than usual keeping the USD/JPY suppressed compared to other pairs. Any dollar strength will be particularly noticeable against the pound following the BoE’s dovish hike in the previous session. The pound was looking weak overnight as it hobbles towards $1.30. A strong NFP could see the pair retest $1.2958 (low July 19th).


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