Stan Shamu for Chris Weston, Chief Market Strategist at IG Markets
Mixed trade ahead of non-farm payrolls
Asia is mixed with a degree of consolidation across equities following some big moves recently. These moves also mirror what we saw through European and US trade where a degree of uncertainty is fuelling a cautious tone at the moment. While global central banks are doing all they can, global growth concerns remain very real; until we get to a stage where a sustained recovery is in place, volatility will remain a key theme.
There were a few developments in Europe with the most notable being upward revisions to the euro-area growth forecasts (1.3% in 2015 and 1.9% in 2016) by the European commission. Greece also reassured investors that its banks retain funding access which saw the euro recover after having struggled in Asia yesterday. EUR/USD bounced off $1.1300 and has since popped back above $1.1400. The ECB will allow the Greek central bank to offer €50 billion in emergency liquidity assistance.
ASX 200 makes it twelve
While it has been a very quiet day in Asia, there has been a bit of activity in Australia where the ASX 200 completed its twelfth consecutive positive session despite having lost significant ground from its highs. Eleven consecutive positive sessions was the most we’ve ever had (back in October 2003) and a twelfth was a record breaker. At these levels and after such a run, there is always the risk of profit taking and some nervous trading.
The key event for the local market and AUD was the latest round of the RBA’s monetary policy statement. This gave a bit more colour to the RBA’s rate cut on Tuesday and saw expectations pared back around whether we can expect an immediate follow up to the February rate cut. From pricing in around a 32% chance of a March cut following the February cut, expectations dropped to a low of 19% on the back of the statement. However, this number has since bounced back to around 32%.
While the RBA downgraded inflation and growth forecasts, it perhaps wasn’t as aggressive as the market was expecting. This suggests a wait-and-see approach may be warranted. The RBA will be hoping other global forces will be enough to keep the AUD at bay in the near term, particularly as commodities continue to struggle.
Greece to remain a talking point
Ahead of the European session, we are calling the major bourses a touch lower with Greece headlines likely to continue driving sentiment. While it seems funding will continue to flow in the near term, there will be fears Greece is at risk of plunging into a fresh political crisis should the government not appease the masses with an ideal result from the negotiations. Recent steps also seem to imply European leaders are looking to put more pressure on Greece and accelerate the negotiation process.
On the calendar today we have German industrial production, French trade balance and UK trade balance. The Fed is in data-dependant mode and while today’s non-farm payrolls have not been as documented as in recent times, they certainly deserve some attention. Consensus is for 230,000 jobs added with the unemployment rate steady at 5.6%. Average hourly earnings are expected up 0.3%, which is a modest improvement from December. China releases its trade balance numbers on Sunday and this is likely to help set the tone for Monday’s trade.