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Round Up – Equity Markets, US Non-Farms & EUR/USD

James Boston
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www.finances.com

Almost US$3 trillion has been wiped off global equity markets so far this year as Central and Reserve Banks around the world gradually phase out monetary easing programs.
It is not the scale of the stock market sell off that is causing concern, higher interest rates generally lead to lower stock markets, what is causing surprise however is the speed of the sell off.

Unexpectedly poor UK, US and Chinese manufacturing data over the past week have compounded the problems for stock investors, and despite direct government intervention in the markets, earnings season on Nikkei is not going well.

As equity markets give reason to rethink the strength of the global recovery, positive unemployment statistics from the main economies have provided solid foundations and a belief that recovery, in whatever form, is imminent.

Accordingly, the key US Non-Farm Payroll figures due later this week take on a heightened significance. Consensus estimates for this Friday’s release are in the 175k region, and more so than usual any deviation from this expectation will have a quick, and probably dramatic, effect on both equity markets and the US Dollar.

EUR/USD has been trending lower since the start of this year, off a December peak of 1.3804. Currently at the lower boundary of this descending channel, Dollar strength is trying to break through as markets continually search for reasons to buy the greenback. As it stands an encouraging Non-Farm figure this week is likely to finally provide the momentum that the US Dollar needs to break out.

Two caveats exist here. Firstly, volatility is at a 2 year high in equity markets and this leads to general nervousness among investors, there is no reason to think this unease won’t transfer to the currency markets. Secondly, the European Central Bank (ECB) has the ability to provide a surprise on Thursday this week, interest rate markets are continuing to price in a rate cut despite ECB officials remaining insistent to the contrary.

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