Despite Increasing Bond Yield, NFP Data And A Downward Risk Warning, Eur

European stock markets are trading higher in the light of another record finish in the US markets yesterday. This record finish which was inspired by improving data has also pushed the Asian market’s ups with Nikkei surging more than 3% during the session. Investors around the globe have digested the fact that the US economic data which is constantly surprising the markets, is not making much effect on the Central Bank’s decision to turn the heat lower on their ultra loose monetary policies.

Increasing bond yields could hurt housing
However, the US bond markets may not be buying this idea because the long curve of the bond with 30 year yields is back above its May high’s despite the two year yield for the T bonds is well below the highs of May.

One can argue that if the yield on the 30 year bond does stay at this level, this could seriously derail the housing recovering in the US, because an increase in the 30 yield bond yield could have a negative effect on the mortgage rates. It seems that Fed may not be paying too much attention to this for now, but a longer negligence could bring a serious consequence for the mortgage market.

NON Farm could trigger September tapering
The astonishingly improving economic data which has been released this week could have final decoration today, if the mother of all data US Non Farm Payroll data also beats the expectation level. The Fed’s tapering decision is primarily based on the US job market with the target of 6.5%. The forecast for the unemployment rate is a drop, with the final reading of 7.5%, while the previous reading was 7.6%. If there is a decrease in the unemployment rate, this could further fuel the September tapering decision.

But, this could not be that easy decision for Bernanke who also has his eyes on the PCE inflation figure which is well below their target.

Data pushed the market with thin volume
The volume is low in the European markets ahead of non farm payroll data despite some mild gains. The bulls are testing the FTSE 100’s limit by gaining their traction after better than anticipated number of manufacturing PMI data which was released yesterday. The revised upward revision for the Q2 GDP may have dented the hopes of further stimulus but if this revision is that strong among traders could be determined by the upcoming data-construction PMI’s number which is due at 8:30 GMT.

Downward risk may take the steam out
The other European indices may not be able to keep their steam for longer after the manufacturing data released on Thursday showed that the region is still faced with risk which remains to the downside and the ECB president’s comments also flesh those concerns.

Currencies
The EUR, GBP are trading at an important junction where either they can reverse their trend up or start trending down against the dollar. The CAD is trending up against the dollar on an intraday basis. However, the AUD and NZD are trending down against the dollar.

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