Several positive factors have come together to improve sentiment and equity markets have swung back positively once more. How sustainable the recovery in sentiment proves to be will take at least a few sessions of gains to determine.
- Main drivers: Markets are on hold in front of payrolls; however, bond yields and oil prices begin to rise again; progress towards US debt ceiling extension; Nonfarm Payrolls report later.
- Consolidation ahead of payrolls: as is often seen in front of Nonfarm Payrolls, markets consolidate into the European session.
- Yields rise, oil rise: The recent improvement in risk appetite has come as US bond yields have consolidated and the oil price pulled back from its sharp rise. However, yields are rising once more, with the yield curse “bear steepening” (which should support USD) and oil are pulling back higher again. [Risk negative]
- US debt ceiling progress: US Senate passes the debt limit bill (50:48) which sends it to the House of Representatives (votes on Tuesday) to extend the limit until 3rd December. [Risk supportive]
- Central bank speakers: ECB President Lagarde speaks at 1305GMT in an online event, with US Treasury Secretary Yellen also speaking.
- Data watch: US Nonfarm Payrolls at 1230GMT are expected to improve to 500,000 for September (from August’s disappointing 235,000). Also watching Unemployment which is expected to fall to 5.1% (from 5.2) and Average Hourly Earnings expected to grow by +0.4% MoM to 4.6% YoY (from 4.3% last month).
- Broad outlook: Equity markets consolidating in front of payrolls, but with bond yields higher this sets up USD for further gains. Oil is also higher.
- Forex: EUR/USD consolidating around the breakdown of 1.1560 old support. We favour downside and selling intraday rallies for a test of next support at 1.1420/1.1490. Above 1.1610/40 for any sense of sustainable recovery. GBP/USD consolidation continues around 1.3650. No renewed selling pressure yet. Below 1.3540 re-engages downside momentum. AUD/USD has pulled back slightly this morning but has been threatening resistance around 0.7315. A decisive close above opens recovery towards 0.7400/0.7475.
- Commodities: Gold is in consolidation between $1745/$1770. There is still a medium-term negative bias (suggesting selling into strength) and the near term rally has stalled. However, we look to renew short positions below $1745 and we are neutral for now. Silver is still unable to overcome key resistance $22.75/$23.00 that would open a recovery. With resistance intact and medium term momentum indicators negative we prefer short positions to retest $22.00 and $21.40. Brent Crude oil a strong candle yesterday is eyeing the $84.10 high once more and the bulls have been re-engaged. Above $84.10 we are cautiously optimistic for $86.95 (2018 high) but momentum is stretched again.
- Indices: Recent recoveries need to continue otherwise they will be treated as bear market rallies. S&P 500 futures need to hold above 4388 to sustain the improvement. Below 4364 re-engages selling pressure. A close above 4422 would be a positive signal. DAX rebound has faltered at 15,265 resistance. Above 15,265 opens 15,440/15,500. Below 15,110 opens 14,810/15,000 again. FTSE 100 very choppy near term moves. Big swings higher and lower, unable to sustain traction. Resistance 7160.