European markets are trading mostly lower this morning along with the U.S. futures. The president of the European Central Bank painted the most dovish painting with his brush as many were expecting in the market. There were two reasons behind that. Firstly, the strength of the euro is too much to digest for the central bank and it wants to knock that out so that he can spark more growth in the region. Finally, it is about the recent turbulence which we have been experiencing in the markets and the central bank wants to assure investors that their money is safeguarded by the central bank. As long as the central bank remains committed to the spur growth and support the stock market, traders without any doubt feel more comfortable in holding riskier assets.
However, today is not the day when traders will be apprehensive about what the ECB decision, as their focal point will be only on one significant economic data- also known as the mother of all economic data- the U.S. Non farm payroll number. This number can lift the investor’s enthusiasm about the weekend and they could be wishing each other Happy Friday’s greeting. On the other hand, if the number falls off the cliff, this could turn out to be a Black Friday- but the chances are more minuscule for that. There is also a middle ground in between these two extreme scenarios, which will keep the investors chasing every single comment out of the U.S. Federal reserve bank in order to make sense when the bank will raise the interest rates.
Remember the inflation meter, which the Fed considers another imperative mandate can also be judged from this data in the form of wage growth. So the big question is what is the range of wage growth and the U.S. Non farm payroll which could be called as a bullish number and perhaps make the case of September rate hike more brawny.
If we see the headline number for the U.S. Non farm payroll remain above the 200K, the market will consider that as a bullish signal and if it is more anchored towards the 250K mark, that will be considered as a very bullish number. On the other extreme side, which we do not think has more odds stacked in its favour, is anything below the 150K mark. This number may trigger heavy sell off for the U.S. Dollar index and the dollar may experience strong downward pressure. Finally, we have that middle ground, which is going to keep the Fed maintain their stance that they are data dependent and this area will be anything above the 150k but below the 200K mark. The closer we are towards the 150K, the more dovish tone we may hear from the Fed in relation to their decision to raise the borrowing rates.
The wage growth number will be under the focus of many lenses. So, once again, if the wage growth shows a strong number and the number is more skewed above the 2.0% mark, it will show that the headline inflation number has less importance for the Fed as in the wages are increasing which will push the inflation number higher.
Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.
by Naeem Aslam