Capital market price moves this week has not been for the faint of heart. If it’s not a geo-political squeeze, it’s a safe-haven asset demand perforated by central banks go-slow summer monetary policy rhetoric. Recent heightened volatility will remain until investors can get clarity on the U.S presidential election (Nov. 8).
Today’s nonfarm payroll (NFP) could be that “further bit of evidence” that the Fed requires to lock down a rate hike in December. However, the markets unknown variable remains next Tuesday’s U.S Presidential election outcome.
With today’s payroll print, investors are expecting an increase of +173k in October, up from the +156k September gain. The unemployment rate is anticipated to fall to +4.8% from +5%.
The headlines may end up pleasing many, but investors should be keeping an eye on wage growth and labor participation prints; either may go some ways to explain why so many still feel economically insecure, despite the robust job creation and low unemployment rate – a cause of concern for the Fed.
1. Stocks extend pre-election sell off
A global equities selloff continued overnight as investors shunned riskier assets ahead of next week’s U.S. presidential election. Currently, stocks are wrapping up their worst week since the run-up to the U.K’s Brexit vote in June, plummeting as polls reveals a smaller lead for Clinton.
In Asia, regional bourses have banked their weekly losses despite some better regional data.
Japan’s Nikkei stock index slid -1.3%, reopening after a public holiday yesterday. The index was basically catching up to losses from the previous global session. It’s down -3.1% for the week, the biggest weekly drop in four-months, dragged down by the resurgence of the safe-haven yen (¥102.97).
Elsewhere, Australia’s S&P/ASX 200 ended Friday down for the fourth consecutive session, at -0.7%. Korea’s KOSPI closed -0.1% lower. Hong Kong’s Hang Seng Index closed off -0.2%, while the Shanghai Composite Index finished -0.1% lower.
In Europe, equity indices are trading sharply lower as the uncertainty over the U.S presidential race dominates. Also adding pressure are the services PMIs out of France, Italy and Spain missing out on expectations.
S&P 500 futures are little changed ahead of NFP.
Indices: Stoxx50 -1.0% at 2,946, FTSE -1.3% at 6,699, DAX -1.0% at 10,224, CAC 40 -0.9% at 4,374, IBEX 35 -1.0% at 8,789, FTSE MIB -1.2% at 16,227, SMI -0.5% at 7,601, S&P 500 Futures -0.1%
2. Oil set for sixth straight day of declines
Crude prices are on the back foot and completing its sixth straight day of falls ahead of the U.S open. It’s being dragged lower by a surge in U.S. crude inventories this week, timid demand and doubts over the ability that OPEC will be able to coordinate cuts.
Brent crude futures are at +$46.21 per barrel, down -14c from yesterday’s close. U.S. West Texas Intermediate (WTI) futures trade down -9c at +$44.57 a barrel. The current dip puts crude on the longest losing run since June’s Brexit vote.
The +14m barrel build in U.S inventories this week, the largest on record, highlights that a global fuel supply overhang is far from over, which suggests lower prices.
Gold has declined -0.2% overnight to +$1,301.11, trimming this week’s advance to +1.9%. Prices are up more than +3% since mid-October and hit their highest level in a month Wednesday (+$1,308.55) on narrowing poll numbers.
For some, today’s payroll report could be an opportunity to take profits on the metal’s recent rally. A strong number would help bolster the case for the Fed to hike on Dec 14.
3. Sovereign bond rout put on hold
G10 sovereign bonds have handed investors a +1.5% gain this week and are on the verge of completing their best weekly return since July.
U.S 10-year yield has fallen -6bps this week to +1.79%, while the rate on similar maturity debt in Japan has declined -1.5bps to -0.065%.
Currently, fed fund futures indicate that the odds for a Fed rate increase by year-end have rallied to +78%, the highest level since March, and up from +69% last week.
Those odds will change dramatically if this morning’s U.S payroll print disappoints. Dealers will steepen up the U.S curve.
4. U.K/European Court Decisions muddy the Brexit waters
Yesterday’s decision by the U.K.’s High Court and European Court certainly complicates Brexit. The U.K. must hold a vote in Parliament before starting the two-year countdown to Brexit.
For the corporate sector, this means a prolonged period of uncertainty over a possible Brexit outcome, which may cause companies to defer economic decisions. The chances of a ‘soft Brexit’ have also risen because of a ‘Bremain’ majority in parliament would surely attach “riders” to the Brexit plan if they have to vote on it. This could be considered somewhat positive, the pounds move higher since yesterday would suggest so.
For sterling bears be forewarned, the combination of the Court ruling on triggering Article 50 and better-than-expected recent economic data could lead to a further squeeze higher for the pound in the coming days.
5. Turkish Lira hits new record low
TRY hits a new record low outright overnight ($3.1384) on rising political tension after at dozen lawmakers from the pro-Kurdish party (HDP) were detained in post-midnight operations.
Against a basket of 16 peer Emerging Market’s it has fallen -0.7% today, taking its total underperformance this month to -1.1%.
