From the Floor: NFP 'critical' for July hike move
- NFP report for May due out at 1230 GMT as hike speculation grows
- Strong NFP 'critical' for determining if we get a July hike — Garnry
- Federal Reserve predicating summer move on strong data
- Dollar strength likely to return against euro if print is strong — Hardy
- ECB treads careful line to avoid any hawkish misinterpretation— Hardy
- Bonds futures surge to 164.5 on back of Draghi press conference — Boye
- Opec meeting 'ends all smiles' as price level removes need for decision — Hansen
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By Martin O'Rourke
There are data points and then there are data points and the nonfarm payrolls report for May looks set to be key in determining if the Federal Reserve is to go down the path of hiking rates this summer, with July most likely for a move.
"The NFP is one of those critical data points for whether we have the July hike", says Saxo Bank's head of equities Peter Garnry. "It will be very interesting to see what today's NFP does to Fed Fund futures".
July is priced in at around a 60% chance for a rate hike having risen from just a 28% chance one month ago.
If the NFP does surprise to the upside, then expect the dollar to push back against the euro which was left flailing Thursday as European Central Bank president Mario Draghi turned in one of his less flamboyant appearances to keep the dovish foundations of the bank's policy firmly in place.
"This was one of the least anticipated meetings in quite some time", says Saxo Bank's head of forex strategy John J Hardy. "The ECB kept the door open for further moves but they are satisfied in the short term with developments and don't want to give any hawkish message in the least".
"Euro is going to be one of the weaker currencies and if there is a surprise to the upside, then I would suggest EURUSD has one of the bigger scopes for a reaction", says Hardy. "But this is not only about the jobs number, it is also about the unemployment rate so stay on your toes".
EURUSD was down to 1.1149 at 0655 GMT.
There has nevertheless been a shift in the market's stance towards a summer rate hike move, says Hardy. "The market seems to be saying that we can deal with the Fed messages and we're back to a good news equalling good news and bad news equalling bad news pattern".
How will EURUSD react after today's NFP?
Elsewhere, USDJPY slid beneath the 108.50 mark overnight as yen strength continues to grow on the back of the sales hike delay to 2019. GBPUSD meanwhile could be set for a slide beneath 1.4335 area, warns Tareck Horchani, as Brexit concerns and the uncertainty enveloping sterling threaten to take it out of a range where it has sat for some time.
European bonds rode the dovish wave set forth by Draghi Thursday to surge to new highs, reports Michael Boye from the fixed income desk in Copenhagen. The German 10-year bund hit 164.5 as the ECB announced it would start buying corporate bonds from next Wednesday (June 8).
There is also a feel-good theme in equities, says Garnry, who thinks this month could be a turning point for global equities.
"We're seeing an impressive rally in the S&P as we anticipated and I think there is an increased possibility that June could mark a turning point for activity"; he says. There is still uncertainty, he warns, but Garnry also thinks higher Fed Fund rates might spark some M&A activity.
There were even smiles emerging from Thursday's Opec meeting where the usual fissures were hidden well behind a peace and harmony façade that probably had some of the old guard tearfully reminiscing for the good old days of the 1970s and 1980s.
"The Opec meeting ended in harmony because the oil prices in essence removed the need to make any decisions", says Saxo Bank's head of commodities strategy Ole Hansen. "The market initially reacted negatively to the lack of a deal and then started to rally again".
Can WTI join Brent above $50/b?
Options are still skewed to the Put side, says Hansen, and WTI remains stuck in a $48.30-50.20/barrel range. Brent crude was at $50.18/b at 0655 GMT.
Even gold, which had threatened to barge its way through the $1,200/oz trapdoor a week ago, has consolidated in the $1,200-20/oz zone, says Hansen, who adds that the long position continues to build. "This would probably only get rattled if gold dipped below $1,145/oz", he says.
Gold, he adds, is also getting a bit of a boost from some outperformance in precious-metal sibling silver which is helping to "keep demand coming in".
We don't like to puncture all this feel-good news, but South Africa could be facing a downgrade from credit ratings agency Standard & Poor's. While the other big players Moody and Fitch continue to hold their position on Africa's most prominent economy, that may not matter too much in the short term but any shift on their part could see a major shakeout down the line.
Back to work, back to reality. Photo: iStock
Martin O'Rourke is managing editor at Saxo Bank
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.