Article / 05 August 2016 at 7:00 GMT

Morning Markets: Fed plans hinge on NFP number

Former managing editor, / Saxo Bank



  • Germany June Factory Orders (0600 GMT)
  • UK July Halifax House Price Index (0730 GMT)
  • US July Employment Report (1230 GMT)

The US Federal Reserve has stressed time and time again that any further move on interest rates is data dependent and after the mammoth 287,000 nonfarm payrolls print for June, another strong number Friday could be the nudge the Fed needs for a move.

The consensus is for a 180,000 addition and anything above that number could see Fed hawks sharpening knives for a move sooner rather than later. December nevertheless still looks a more likely date for a move than September given the very likely fractious nature of the upcoming US presidential battle between Donald Trump and Hilary Clinton.

A swing lower can't be discounted given the 38,000 shocker from May but that figure is increasingly looking like an outlier in a run of prints that have tended to converge around the 200,000 mark month after month. The dollar could certainly do with a fillip having drifted through the summer against its major peers.

The Bank of England's £170 billion sledgehammer approach to the UK's decision to leave the European Union on June 23 cheered Asian markets overnight with the Hang Seng, Nikkei and the Shanghai Composite Index all initially up although the latter two were trading virtually flat on the day in the hour before the European close. GBPUSD predictably fell again after BoE governor Mark Carney predicted 2.5% shrinkage in the UK economy by 2018 before finding solid ground at around 1.3125.

Ongoing yen strength helped curb Nikkei's enthusiasm and kept USDJPY still in touching distance of the 100.0 barrier. A significant surprise in today's NFP could be decisive in determining if the pair does indeed make a break for the pivotal mark over the next few sessions.

Elsewhere bonds are rallying, oil's midweek rally already looks spent and gold continues to await a decisive catalyst for a move either way with underlying risk-off sentiment still favouring an assault towards the $1,400/oz mark.

Market signals

Asian session

  • The BoE decision to slash interest rates to just 0.25% has had a global impact
  • The Nikkei 225 headed higher, adding to Thursday's gains
  • Korea's Kospi Composite headed into positive territory
  • Hong Kong's Hang Seng index headed sharply higher
  • Japan's average cash earnings were up 1.3% against expectations of 0.4%
  • Australia's benchmark S&P/ASX200 has gained 11% since its post-Brexit vote low
  • The S&P/ASX200 traded as high as 5,509 but was 0.35% down at 0600 GMT
  • RBA Monetary Policy Statement suggests further rate cuts are likely

Forex ahead

  • Implied volatility in 1-month GBPUSD options slides after BoE sledgehammer
  • The US dollar lost more ground against the yen; it was worth ¥101.1200 at 0600 GMT
  • The BoE rate cut had an impact down under; it helped prop up the Australian dollar
  • Weak copper prices could undermine the AUD; it was worth 0.7654 at 0600 GMT
  • 1-month USDJPY implied volatility at 10.1/10.5%

From the Floor

All quiet on the eastern front.The only mover overnight was the pound,” says Horchani .

BoE sparks risk-off surge. “Core bonds are better bid after the BoE outing yesterday,” says Fasdal.

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

While US nonfarm payrolls will dominate financial news, German factory orders and the post-Brexit vote UK house price index will attract plenty of interest, says Juhani Huopainen

Swinging pendulum
Despite that huge June figure for the nonfarm payrolls, Kay van-Petersen explains why we should not necessarily anticipate marching past the 180,000 consensus for July.[video]

More to come
The Bank of England has only just begun as far as this current rate-cutting cycle is concerned and Dan Juhl-Larsen expects another to follow before the end of the year.[video]

Turkey shoot
Following Turkey's coup attempt last month, the lurch to autocracy has the country stuck in reverse and facing up to a downgrade from S&P. Where wll it end, asks Clemens Bomsdorf.


The Federal Reserve will have its eye firmly fixed on today's NFP for July. Photo: iStock

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