Börse&Märkte

Stocks Trade Cautiously Heading Into US Non-Farm-Payrolls

Shares markets in Europe have been flipping between small gains and losses Friday as investors gear up for the all important nonfarm payrolls out of the US later this afternoon, demonstrating reluctance to build risk ahead of the data. Dovish BOE and ECB embarking on forward guidance sent European stock markets sky high Thursday, propping up US stock futures which are up strongly before the US open. Wall Street was shut Thursday for Independence Day so traders across the bond will have to play catch up whilst contending with the jobs report which is out before the US open.

 

Payrolls are expected to come in at around 160k jobs generated by the US economy last month with the unemployment rate is set to tick down to 7.5% from 7.6% - ADP this week was stunning while jobless claims fell and the ISM’s jobs component also improved, boding well for a strong number later. Markets responded favourably to the labour reports this week, a switch from the unnatural reaction to economic data following Fed head Bernanke’s testimony in May 22 which sent shockwaves across global markets as the Fed indicated it plans to taper stimulus.

 

Since then, Bernanke has provided more details, offering a time-line and his colleagues have urged markets to not over-react, saying the Fed remains committed to ultra-low interest rates and that tapering is depended on economic data. Judging from the markets’ response since the Fed’s last meeting in which it provided greater clarity on its QE strategy, a sense of calm and normalization is returning back to the market. For that reason, a poor number below estimates will not been seen in a favourable light whilst a strong reading should be greeted with cheer. We all know the end of QE is inevitable – the Fed has fired its warning shot to markets that liquidity will be removed so get used to it.

 

Furthermore, the ECB and BOE taking a dovish tone by providing “forward guidance” of keeping interest rates low for an extended period of time provides the market with greater confidence on the outlook of global central bank liquidity. Both have made it clear to markets that they are not singing the same song as the Fed, rather, both have said that the Fed’s tapering plans have led to an unwanted spike in bond yields which is weighing on economic growth. Importantly, both are keeping accommodative stances, essentially telling the market that even if one central bank may be stepping out the QE game, you still have two central banks who have got you backs covered. Importantly, the BOE said that although the UK recovery is in train, the economy is still weak. This was taken as a sure sign that the BOE have no qualms in pumping in more QE if needed. Indeed, this led Goldman Sachs to advise its clients to bet on a 12% rise on the FTSE100 as the BOE supports an economy which is showing signs of recovery.

 

Helping sentiment further, concerns over the government crumbling have eased after PM Coelho works with two coalition ruling parties to find a formula to avert a collapse. This has been reflected mostly in Portugal’s 10 year bond yields dropping to 6.8% at present compared the 8% climb after two high profile ministers resigned. The market did over-react to initial fears that Portugal may need assistance from the ECB but that’s not exactly the case as Portugal’s Treasury has the EUR10billion to pay in debt through 2013, so there’s no need to fret that it doesn’t have sufficient funds. Additionally, the ECB dismissed any concerns over the country at the presser on Thursday, saying Portugal’s come a long way since its bailout in 2011 and is essentially a good student.

 

So the immediate concerns of default or bailouts have abated but the question is for how long? It’s clear from the resignations from two ministers, one being the finance minister [who was the architect behind repairing Portugal’s finances] that both the public and a number of ministers in the government are anti-austerity. This is a country that hasn’t posted economic growth for a decade and if the government can’t function effectively and has to implement harsh austerity, this will fuel civil unrest/public outcry which again rocks political stability to its knees. The mood may be calm for now, but investors will be closely eyeing developments in Portugal with any signs of instability pushing 10-year peripheral bond yields to levels which will make the market feeling uncomfortable and perhaps even seeing the ECB step in and activate those dormant OMTs.