NFP – Its all About the Bejamins

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Market Drivers June 1, 2018
Rajoy ousted, UK data beats
Wages key to NFPs
Nikkei -0.14% Dax 1.00%
Oil $66/bbl
Gold $1299/oz.
Bitcoin $7540

Europe and Asia:
GBP UK PMI Manufacturing 54.4 vs. 53.5

North America:
USD NFP 8:30
USD ISM Manufacturing 10:00

Despite the ouster of the Spanish Prime Minister, escalation of trade tensions between US and the rest of the world and continuing uncertainty in Italy the FX markets were sanguine on the final trading day of the week and risk was actually bid ahead of the US Non-Farm Payrolls.

After a tumultuous week of trade with geopolitical concerns dominating flows, sentiment has calmed down as much of the risk has been factored in and traders were clearly looking for a relief rally in the absence of any additional bad news.

In UK the PMI Manufacturing turned out to be a bright spot with the report printing at 54.4 versus 53.5 eyed. This was the first beat in three months and shows that demand appears to be stabilizing. The rise was driven by build in finished goods which were the highest in history but the business sentiment remains at 11-month lows and suggests that any sign of pick up is still weak. Nevertheless, cable managed to pop above the 1.3300 level as some short covering kicked in.

Turning to today’s NFPs the market will be focusing squarely on the wages number with most participants anticipating at a print of 175-200K in jobs. Given the fact that ADP came in at 178K this month, the chance of any downside surprise remains slim, but the two surveys occasionally diverge. Still, assuming the job picture remains steady, the primary driver of trade will be wage growth.

The market is looking for a modest 0.2% bump which is unlikely to change any expectations of Fed tightening. However, a print at 0.3% or even possibly 0.4% should give USDJPY a much needed boost back to 110.00 level. The pair has sold off most of the week on risk aversion concerns, so if today’s data proves solid, the market may refocus on economic issues and resume the dollar rally.

Boris Schlossberg
Managing Director

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