From the Floor: Dollar prowling as NFP looms
- Dollar consolidating position after strong ADP report
- Friday's nonfarm payrolls the key piece of data ahead of next FOMC — Hardy
- Market potentially behind the curve on Fed rate move intentions — Hardy
- Tesla clattered for $422m fine as "cash burn" gathers pace — Garnry
- Stay short Tesla as it looks for additional capital before year-end — Garnry
- Long position on Deutsche Bank opens up as CEO talks tough — Garnry
- Fresh verbal intervention on oil unlikely to enjoy mid-August success — Hansen
- Gold holds the line above $1,300/oz but $1,250/oz is in view — Hansen
By Martin O'Rourke
Dollar bulls may have slightly retraced their steps overnight, but the ADP jobs report cantered to an additional 177,000 positions in August and did nothing to dilute the optimism that is building towards tomorrow's much more closely watched nonfarm payrolls number.
"Everyone is pretty much waiting now to see if the ADP beat feeds into the NFP number tomorrow", says Saxo Bank's Asia macro strategist Kay Van-Petersen. "We also have this potential Fed rate hike around the corner too".
Indeed, Boston Federal Reserve chief Eric Rosengren shifted from his usual dovish stance overnight towards a more hawkish position pointing towards the US closing in on full employment and its 2% inflation target.
"Rosengren sounding relatively hawkish suggests that the Fed is at a trade off point between what is needed to support the economy and the financial risks to stability", says Saxo Bank's head of forex strategy John J Hardy. "My suspicion is that the Fed has financial stability a bit more on the map than the market is recognising so perhaps there are higher odds of a move on rates than is priced in".
Rosengren's shift likely points to a solid NFP Friday with July's bumper 255,000 number to be followed by an estimated 180,000 for August, according to the consensus forecast. Anything in and around that consensus is likely to fuel the speculation for September which has come out of nowhere in the last two weeks to become a viable possibility.
A weak Chicago PMI Wednesday may have dampened dollar's enthusiasm slightly, but that will be swept away if tomorrow's number is big.
"The question is, how much does the market want to react to that (Chicago PMI) ahead of the NFP tomorrow which is the key data point going into that Federal Open Market Committee meeting on September 21", adds Hardy.
That looks likely to see the major pairs jockey for position over the next 24 hours before we get the NFP number at 1230 GMT Friday.
Hardy has his eye on EURGBP in the meantime which could face a squeeze after dipping to new lows and sterling shows some signs of a return to form ahead of a key UK August Markit Manufacturing PMI at 0830 GMT today.
EURGBP has plenty of range to play with
It may have been a stock darling once but electric vehicle maker Tesla is facing a $422 million penalty to bondholders in the third quarter that will almost inevitably see the hybrid car pioneer return to the capital markets with cap in hand.
The revelation in a securities filing is partly down to the SolarCity Corp merger which has caused some disquiet among investors.
"Tesla will be looking for additional capital as it burns through cash faster than was thought", says Peter Garnry, head of equities strategy at Saxo Bank. "It is why we continue to stick to our short position on Tesla".
Garnry has better news for beleaguered Deutsche Bank which, after a torrid 2016, may at last be getting to grips with the problem.
"I think the new CEO John Cryan is changing the outlook for the better", says Garnry. "It's looking to sell off parts of the asset management unit and other stakes and if they do the same as Barclays, make a huge list of non-core assets and then start getting rid of those assets, then they can do a lot for investors".
"That would create a huge upside potential", he adds. "We are initiating a long position".
Deutsche Bank's torrid 2016
Oil has weakened and, unlike mid-August, a verbal intervention is not likely to yield the same result as the short position that helped ballast the rally has been decimated.
"Oil has gone from a short covering position to long liquidation within a week", says Ole Hansen, head of commodities strategy at Saxo Bank. "We've seen the break of $46.50/barrel and next targets are at $44.70/b and then $43.60/b".
Gold too is on the slide but is still managing to hold the line above $1,300/oz. "If you take a long-term perspective, then gold is clearly capped at $1,382/oz and there is scope for a move down to $1,250/oz", says Hansen. "It is all about dollar strength at the moment".
One unsuspecting victim of the US presidential campaign could be the biogen sector with Garnry warning against going big on pharmaceuticals.
"I'm taking an outright short on biogen stocks as the rhetoric on the sector on both sides of the campaign is increasingly negative", he says. "Biogen has also risen some 30% since its June lows".
Martin O’Rourke is managing editor at TradingFloor.com
Editor’s note: From the Floor takes advantage of TradingFloor.com's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.