Stock market bulls look to NFP to extend the rally

Updated August 5, 2022

Headlines

*Stocks rise ahead of US payrolls data awaiting clues for Fed rate hike

*RBA warns economy to slow sharply as inflation soars  

*Oil heads for 10% weekly collapse as slowdown hits demand

*Gold enjoys third weekly gain on rising demand for havens  

US equities closed mixed with the S&P500 and Dow closing marginally in the red. The Nasdaq advanced higher for a seventh straight session adding 0.44%. The tech-laden index touched its highest level since the start of May. Gains in high-growth stocks offset losses in energy shares. Asian markets are trading higher while US stock futures are indicating a positive open.

USD finished the day before NFP lower as the DXY struggles with gains beyond 106. EUR has stalled again around 1.2050/70 and has tracked sideways for nearly three weeks. GBP stabilised after yesterday’s tumultuous BoE meeting. A “doji” candlestick printed representing indecision. USD/JPY is lacking firm direction above the 133 level. AUD and NZD are trading around their 50-day SMAs.

Day Ahead – NFP to show solid job gains   

Consensus expects to see a headline non-farm payrolls print of 250k later today. Unemployment is likely to tick up to 3.6%, just off pre-pandemic multi-decade lows. But the jobless rate is not forecast to rise for a few months putting off the next leg down in wage growth. Average hourly earnings are seen rising by 0.4% m/m and 4.9% y/y.

The data release is always an exciting risk event, and this should be no different as the Fed is data dependent. A better-than-expected report, with a headline number greater than 400k, steady jobless rate and solid wage growth should see yields rise and the dollar go bid with equities selling off. Any headline around 100k to 300k mark will be seen as the “goldilocks” scenario – not too hot, nor too cold. Money markets will keep the 60% chance or so of “just” a 50bp rate hike in September, so less chance of a jumbo rate move.

Chart of the Day – Nasdaq proves the doubters wrong

The tech index par excellence has rallied by 20% from its June lows. Earnings from the megacaps have been better than hoped and the pain trade has been tough for many investors to bear. Bank of America notes that only 28% of active fund managers beat their Russell 1000 benchmarks. Short covering has been the name of the game with the most shorted stocks outperforming.

The Nasdaq is now testing the topside of the bear channel and December downtrend. After taking out and retesting the 50-day SMA at 12,136, the index has continued higher above the 100-day SMA at 12,868. This is now first support. The midway point of the March/June move is at 13,151. The next Fib level above is 13,650.

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