nvestors woke up with a little hangover from 4th July holidays with European equities easing moderately and the greenback rising across the board. The Eurostoxx 50 edged down 0.20% to 3,535 points while the broader Eurostoxx 600 slid 0.25%. During the European morning, US futures edged down 0.10%, despite a solid session in Asia.
In the FX market, the buck extended gains against all of its G10 peers, gaining the most against the Swedish krona and safe-haven currencies. The Swedish krona gave up 0.30% as the rally is running of juice. Investors are not convinced that the Riksbank would maintain its hawkish bias anymore. It is difficult to go against the tide especially when central banks across the globe are moving in the other direction. Against such a backdrop, it is reasonable to expect future weakness of the krona.
However, today is NFPs day and unlike the past few months, when market participants lost interest in the report, investors are impatiently awaiting the release. Indeed, Non-Farm payrolls came took centre stage again lately as investors are trying their best to time the next rate cut from the Federal Reserve. Against a backdrop of uncertainty due to lack of significant progress on trade talks between China and the US, and escalating tensions with partners such as the EU, a sluggish report would sealed the fate of the Fed. Jerome Powell would have no choice but to deliver what Trump has been asking for months.
Market expectations are far too high. If Powell doesn’t deliver, it would trigger an equity sell-off and substantial dollar appreciation. In light of the events of the last few months, such a scenario would provoke the ire of President Donal Trump as well as several sharp tweets. NFPs are expected to come in at 160k, compared to 75k in May. Unemployment rate and participation rare are expected to remain stable at 3.6% and 62.8%, respectively. Average hourly earnings should print slightly higher, at 3.2% versus 3.1% previously.
