NPF data may confuse markets

2 авг. 2019 г.

Yesterday, markets somehow tried to price the rate cut in and realized that the door that has been opened for a cycle of rate cuts by FED is not the beginning of a downward cycle.

Therefore, the dollar continued to dominate the foreign exchange market, but the stock market was experiencing problems.

We would like to draw attention to an important nuance in the Fed's rhetoric - the further of the Central Bank actions will be determined by the state of the economy. One of the key indicators of its health is the state of the labor market. That is why today's US statistics is important.

Weaker data on the NFP will give the markets a new serious reason to expect further rate cuts by the Fed. This will finally confuse the foreign exchange market. Strong numbers will show that the Fed should not be in a hurry and cut the rates. That will give a signal that the markets were right when did not sell the dollar-based on the rates cut fact.

What do we expect from the NFP data? If we look at the ADP figures, then the + 160K is the most likely scenario. But we cannot but note that the forecast is less than the average value of the NFP indicator over the last couple of years suggests that the US economy is slowing down.

In general, the output of data in of 150-180K area is a kind of a “grey” zone, when it is difficult to be sure whether this is good or bad. In this case, you can expect anything - both the start of the dollar correction, and the continuation of the current upward movement figures below 140-150K in our opinion can be the reason to close existing long positions in the dollar in order to fix the profits. This, in turn, can lead to the start of a correction in the dollar. NFP above 200K is a serious positive signal for the dollar, which practically removes the question of lowering the rate in September from the agenda.

We note a lack of progress in U.S.-China talks in Shanghai this week. Apparently in response to this lack of progress and in punishing the Chinese for their obstinacy, “The U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country,” says Trump in a tweet. The trade battle between the world’s two largest economies has dragged on for more than a year and a half. Trump shocked the markets in May by hiking tariffs to 25% from 10% on $200 billion in Chinese goods. China immediately retaliated and said a trade deal will not be reached unless the existing duties were stripped. In this light, the safe-haven assets are needed to be bought.

Bank of England yesterday did not change its monetary policy. What was expected and had little impact on the dynamics of the British currency. It still remains captive in Brexit.

We plan to meet the end of the week with dollar sales, which, however, ready to close in case of the NFP excellent figures. Sales of oil and the Russian ruble do not lose their relevance, as well as the purchase of safe-haven assets.