US reveals upbeat ADP employment data, global equity markets rebound

Market Recap 9/4

Global equity market

(Source: KVB PRIME)

US stocks kept performing strongly yesterday as the Dow Jones and S&P 500 opened high and went higher. As closing, the Dow increased 1.59% to 29100.5, the S&P500 rose 1.54% to 3580.84 and theNASQDAQ went to 12420.54, representing a 1.04% increase.

The European market behaved broadly the same; the DAX increased 2.07% to 13243.43, while the FTSE increased 1.35% to 5940.95.

On the Chinese market side, the Shanghai Stock index closed down slightly by 0.17%, while the SZSE Component Index closed up by 0.27%and the GEM index keep climbing by 0.78%.

Precious metal forward contracts

The price of goldkeptmoving between $1955-1970 yesterday;it turned weak during theevening - dropping from $1970 to $1932 - and closed down by 1.4% at $1942.73 by end of the trading day.

Silver opened high and went lower, dropping 3% at one time and closed downby 2.37% at $27.45 per ounce.

Oil forward contracts

WTImoved around the $43 mark during the Asian sessionand slightly decreased by 0.2% in during European trading hours and further dropped $2from daily highs. By closing,WTI oil fell by 3.35% to $41.57.

Brent oil also went down 3.02%to $44.38 with a small rise followed with a sharp fall.

Currency pairs

·        USDXup to92.62(0.434%)

·        EUR/USD down to 1.18529(-0.516%)

·        GBP/USDdown to1.33489(-0.287%)

·        AUD/USD down to0.73343(-0.548%)

·        NZD/USDup to0.67632(0.061%)

·        USD/CADup to1.30459(0.124%)

·        USD/JPYup to106.165(0.203%)

Global Fundamentals

United States

The US released its reading for the ADP Non-Farm employment change for August, which increased by 0.428 million jobs - lower than the forecasts of 1.250 million jobs, but better than July's reading of 0.212 million after it was revised from 0.167 million.

This data indicates the current recovery is slowing down and employment is still under pre-coronavirus levels.

Federal Reserve representative John Williams statedthat the Fed’s new policy framework makes it clear that policymakers will seek a rate of inflation that targets 2% over time. He also said‘lower neutral interest rates constrain the ability of monetary policy to offset negative shocks to the economy’.

Furthermore, he noted‘FOMC participants' median estimate of the neutral nominal rate has fallen to 2.5% from 4.25% in January 2012’.

The Congressional Budget Office (CBO) now projects total deficits from 2020 to 2030 will be $13 trillion, $2.1 trillion higher than previouslyforecasted in March. The agency also estimates debt in 2020 will be $3.3 trillion lessthan April’s projection of $3.7 trillion.

Europe

EU Brexit negotiator Michel Barnier warned the UK there will be no Brexit trade deal at the end of the year unless Downing Street caves in on the crunch issue of fishing rights by the end of next month.

Barnier is said to be 'worried and disappointed' after informal discussions with UK counterpart David Frost this week ended in failure. He also said Britain had failed to make any concessions or signal a willingness to compromise in key areas in order to break the current deadlock.

Meanwhile, Bank of England (BoE) Governor Andrew Bailey revealed that negative ratesare one potential tool the bank could implement in future, but they do not form part of its current selection.

Bailey also emphasised that there is still space for further quantitative easing and that August’s data will provide a guide for further action.

Crude oil

The US Energy Information Administration (EIA) revealed on Wednesday that crude inventories fell by 9.362 million barrels in the week ending 28^thAugust.

Economists had forecasted a decrease of 1.887 million barrels. At the same time, gasoline stocks dropped by 4.320 million barrels; distillate stocks also fell by 1.676 million barrels, while analysts had forecast a drop of only 1.357 million barrels.

Oil production in the US tumbled by 1,100,000 barrels a day to 9.700 million barrels a day. US crude oil imports averaged 4.9 million barrels per day last week, a drop ofaround one million barrels per day from the previous week.

Today’s major assetanalysis

EUR/USD

The poundfollowed our predicted pattern closely yesterday. The price reconsolidated back to 1.322, which would allow us to capture 50 pips’ profit.

Today’s overall strategy is same as yesterday’s in that before any progress is reported in the Brexit talks, we will not hold positive attitude towards either currency.

In terms of intraday layout, the Euro has more technical support. A preferable strategy would be to open short positions after the price climbs back to 1.1868 and targeting around 1.18. 

[EUR/USD, four-hour chart] (Source: KVB PRIME)

[GBP/USD, four-hour chart] (Source: KVB PRIME)

AUD/USD

Yesterday’s placement for the Aussiewas another success that gained 46 pips around 0.73. The Australian economy’s fundamentals, however, are not looking too bad, which is a different situation from the EUR.

So, this leaves us with the question: which one is stronger, AUD or USD?

The AUD/USD price now is supported by both of the moving averages but a short-term short selling strategy could be advantageous.

The price may goes back to between 0.733-34 and fall to 0.73, or even decline aggressively to 0.728. In the long run, we still hold abearishattitude towards the AUD/USD pair.

[AUD/USD, four-hour chart] (Source: KVB PRIME)

Gold

Yesterday’s gold placement was fruitful, offering a $18 profit margin – today, reconsolidation will be the major focus during the Asian session, but without major players so the margin will likely be small.

Currently, the price is belowboth of the moving averages. Along with yesterday’s positive global fundamentals, we could expect lower gold price today of around $1930.  

[XAU/USD, four-hour chart] (Source: KVB PRIME)

USD Index

Despite the fact that the US’ current trade balance is set to be announced tonight, USDX is not expected to besignificantly impacted due to many countries applying an ‘internal circular economic structure’ without a great deal ofimports or exports.

The USDX’srange has been kept between $92-$93.8, which provides a good price guide. For today, the price looks set to climb back to $93 and may have another $0.20 of space.

[USDX, four-hour chart] (Source: KVB PRIME)