US stock futures and European markets are trading higher today as traders find comfort in the news that the US debt deal is finally a done deal. This has given traders a lot of comfort, as they have been fretting over the past few weeks over a potential first default by the US.
Now the focus is on one thing and one thing only, and that is the US economy and how to navigate it given that inflation is immensely stubborn and interest rates are more likely to increase. Today, traders are laser-focused on the US NFP data, which is not only going to cause price action for the US markets but will also provide a lot of hints for the future of the US interest rate as the Fed heavily relies on the US job market to make their monetary policy decision.
US NFP Data
The US jobs number will be released at 13:30, and the tone for this number has been set more positively by the US ADP number released yesterday. The private job sector has confirmed that there is less to worry about when it comes to the job market. Traders are expecting another decent reading from the US NFP data today, and the forecast for this number is 193K, while the previous number came in at 253K. The unemployment rate is expected to rise to 3.5% from its previous reading of 3.4%.
What we believe and expect from today’s number is that the actual reading could come above the consensus, if not matching it. Our base case is that we expect today’s number to print at least the reading of 170K, which will again send a clear message to market players that the US job market is tight and there is nothing to worry about. The reading is more than likely to trigger a response in the dollar index, which we expect to move higher as the odds increase for the rate hike. The US Treasury yields are also likely to climb on the back of a strong reading, as traders will see that another rate hike is a done deal now.
Sunak and His Policies
In terms of geopolitical tensions, the UK PM, who has many issues to deal with due to the war between Russia and Ukraine, has flared up tensions further by saying that Ukraine’s rightful place is in NATO. There is no doubt that the huge economic downturn and flood of higher inflation numbers have a lot to do with self-inflicted injuries, and the politicians should focus on more issues that are important for the people living in the country. Russia continues to build stronger ties with nations like Saudi Arabia, India, Qatar, and China, while the UK’s position with these countries isn’t the same as it used to be. All of this adversely influences the economy and the people living here. Sterling will be an interesting currency to keep an eye on after these fresh comments from the UK’s PM on Ukraine.
Oil Prices
Oil prices continue to lose momentum, and there is no doubt that overall it is the energy sector that is lagging behind, as only 37% of the companies whose prices are trading above their 200-day SMA Traders are concerned that a slowdown in economic activity is having a more adverse influence on the demand equation. Economic activity in China, which is one of the largest consumers of oil, hasn’t picked up to earlier expectations. Traders must keep an eye on the price, as we believe that any further slide in oil prices, especially if the crude price begins to talk with a 65 handle, could trigger a response from OPEC—the cartel, which will take no time to announce another cut in the oil supply.
