Stocks and dollar off as all eyes turn to NFP

FX: USD fell quite sharply considering there wasn’t much top tier data. Soft ISM services continued to weigh amid mixed weekly initial jobless claims data. Everyone is waiting for today’s monthly NFP data, bar none. Initial support is at 105.16 and resistance at 106.51.

EUR popped up to near term resistance just below 1.06.  Above here is resistance at 1.0668 and first support below at 1.0539. We had a successful no confidence motion in the French government which brought an end to PM Barnier’s short tenure. President Macron must now try and find another PM who can appeal to a broader swathe of parliament and get a budget approved. That will play out over the next few days and weeks and be a tough task.

GBP also perked up to the downtrend line from the late September top. There has been very little UK centric data this week, The BoE remains cautious about further rate cuts with likely one per quarter going forward.

USD/JPY saw two-way action after initial dovish comments from BoJ’s Nakamura, who urged caution in hiking rates and expressed attention towards the recovering inflation and wage outlook. But markets focused on comments later on which said he was not averse to a hike. The yen performed well on the crosses. Korean political chaos has also helped the safe haven Japanese currency.

AUD steadied but is still stuck in a long-term downtrend. The recent low sits at 0.6399.  USD/CAD moved lower just above support at 1.4015. Money markets are pricing in a little more risk of an aggressive rate cut (41bps) next week at the Boc meeting, which will likely keep the CAD tone defensive. Canada jobs data is released today.

US stocks: US stocks were lower as stocks turned off their recent record highs. The S&P500 closed down 0.19% at 6,075. The tech-heavy Nasdaq settled 0.31% higher at 21,425. The Dow finished at 44,766, off 0.55%. Materials, industrials and health fell the most while consumer discretionary led the gains.

Asian stocks: Futures are mixed. Asian equities traded mixed even though tech drove indices to more records on Wall Street. The ASX 200 edged higher on tech led gains. The Nikkei 225 gapped higher on the open but gave back some gains. The cautious rhetoric from the BoJ’s Nakamura underpinned some support. China stockswere mixed with sentiment also mixed. A recent article in the media downplayed the pursuit of fast growth ahead of next week’s Central Economic Work Conference.

Gold edged down but still stuck in the recent range. See below for more comments.

Day Ahead – NFP and Canada Jobs

The consensus for the headline print sees the US economy adding around 200k nonfarm payrolls to the economy in November. This follows the +12k gain in October which was due to weather and strike-related disruptions, so expectations are for those jobs to be added back to the economy.

Economists reckon Hurricanes Milton and Helene are predicted to have depressed payrolls by roughly 60k, with the former having by far the biggest impact. Strike activity by Boeing took off around 44k jobs so these two figures are the base for a bounce back in the headline print. The unemployment rate is seen unchanged at 4.1%. We note that the Fed’s median September projection forecast 4.4% by the end of this year. The pace of average hourly earnings is seen easing a touch to +0.3% M/M vs +0.4% in October.

Regarding Canada employment figures, analysts forecast around 20k jobs to be added, slightly more than the prior 14.5k. The unemployment rate is predicted to print at 6.4%. The labour market has been resilient all year long with over 270k jobs created so far. Rate cut odds for next week’s BoC meeting have retraced from a 50bps move, which is given only around a 20% chance currently.

Chart of the Day – Gold tracking sideways

Money markets currently price in roughly a 72% chance of a 25bps rate cut at the FOMC December meeting. A headline NFP figure of around 150k with an unchanged jobless rate of 4.1% is likely to be the sweet spot for gold and the risk rally to carry on into the new year. That type of report keeps a December Fed rate cut in play but is also a healthy level of job creation.

An NFP print above 240k, with the unemployment rate unchanged at 4.1%, will see the odds of a December rate reduction reined in with markets questioning if the Fed should simply sit on their hands. Rate cuts would likely get reined hurting gold. Support is $2605 and then around $2536. It would take a very weak NFP, say sub-100k with a higher jobless rate to reverse the US equity bull move. Investors might question the underlying health of the US economy which could help gold as a haven. Resistance sits at $2667 and then $2721.

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