US Non Farm Payrolls to Determine Weekly Stock Market Close
Equity markets are seeing some continued weakness as we come into the end of trading on Friday but price activity is starting to stall out ahead of some key macro data that will be released during the US session. US stock markets have not seen a positive trading session all week and this could continue into the close if we do not see some positive news out of the US employment market.
Market Drivers Mixed, Investors Uninspired
Thus far in the week, we have seen some mixed events but the positives have done little to inspire confidence and US markets have closed negative for four straight sessions. But the positives were significant and could actually be seen as a precursor for what will happen on Friday. Specifically, the ADP employment report came in well above market expectations, showing a rise of 163,000 jobs for the month (much higher than the 120,000 consensus estimate). This number could be a precursor for the Non Farm Payrolls report on Friday, and any upside surprise will be highly beneficial for the major stock indexes.
Analyst surveys are showing that markets are looking for the US labor market to rise by 100,000 jobs for the month of July. This would be a modest improvement from the previous month but this is still well below the 150,000 jobs that need to be created each month in order to keep up with population increases. Given the significant downside pressure that has been in place so far this week, investors will need to see a major surprise in order to turn the trajectory in the other direction.
Central Bank Meetings Signal No New Stimulus
Most of the downside activity has been initated by the results of the central bank meetings that were held by the US Federal Reserve, the European Central Bank, and the Bank of England. In each case, there was no indication that any of these bodies plans to enact any major stimulus measures any time soon and without any additional help, investors are expecting the economies in each of these regions to continue to display weakness.
But going forward, the next driver will clearly be the Non Farm Payrolls and when dealing with the forex markets, the Euro is beginning to look vulnerable to additional weakness if there are no indications soon that Eurozone officials plan to support the economy through government bond purchases in Spain or Italy. The Euro is already trading near yearly lows against the US Dollar but with the key psychological level of 1.20 seen not too far below, there is not much keeping traders from testing these levels in the coming weeks.
The USD/JPY is one of the best indicators of overall risk sentiment and any declines generally signal bearish market activity overall. Looking at the charts, there is some scope for additional weakness, as prices have yet to test major support levels that are seen below at 77.70. We can expect any major bounces until this level is tested, but the general trend is clearly downward given the lower highs seen on the daily charts.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.