European and US futures are trading with a bit of caution as traders are not sure if the sell-off that was started a few days ago is still over as the most important economic readings are yet to unfold. Yesterday, we witnessed further selloffs in the Nasdaq and S&P 500 indices, and both indices are poised to conclude the week in negative territory. However, traders are hopeful that bulls will regain control, as the upcoming economic data that is on the economic docket may just provide enough hope for them to turn things around.
Economic Docket
Today, market participants will closely monitor two significant economic figures. Firstly, it is the Weekly Jobless claim where the bar is set lower as the forecast for today’s number is 231K, which is very much the same as the previous reading. However, before that number is released, we have another important component of the US labor market showing its reading, and that is the US ADP non-farm employment change. The forecast indicates a change of 144K, compared to the previous reading of 122K.
The US ADP number is largely considered the indicator for the most important economic print, namely the US NFP data, which is due tomorrow. Generally, it is believed that a decent reading for the US ADP number would also bring a decent reading for the US NFP data.
Everything Hinges On US Labour Reading
It is important to remember that the Fed Chairman did say that he is not expecting any further weakness in the US labor market, which means that if the data fails to match expectations, we could see a massive reaction in the market, as traders and investors would largely believe that the Fed has made a policy mistake. Although the economic number may only be one economic print—not necessarily an economic trend—it is highly likely that market players may not think the same, and the reaction may be much larger than it should be. This means that any reading showing that the US economy is actually suffering from labor weakness would be a risk-off event.
Gold Price
The shinning metal’s price action would be a particularly interesting one to watch. Three events have the potential to either reset the momentum from the previous event for the yellow metal or cause traders to double down on the current momentum. Firstly, it would be the US ADP number, and 15 minutes after that we will have the US Weekly Jobless Claims. Later on, we will have the US ISM services PMI data; if the story across all of them shows that the fear of policy mistakes is real, then we are highly likely to see traders rushing for the yellow metal. However, if the data reveals solid results, we may witness the continuation of the ongoing trend, leading to further corrections in gold prices.
The below gold trading chart shows important price levels that traders will be keeping an eye on
Asian Stock Market
In Asia, traders primarily concentrate on the Japanese market and the potential effects on the Japanese yen should the Bank of Japan take any action. The recent pay data has given the BOJ some room to make the move if they want to increase the interest rate, but we already know that such a move has a high cost associated with it, and the reality is that the BOJ simply can't afford another blunder. However, the recent pay data, which shows a 3.6% year-over-year increase in cash earnings in the country, may provide some optimism about the economy. Simultaneously, speculators may be eager to capitalize on a significant decline in the value of the Japanese currency, given that the 3.6% increase in cash earnings fell short of the expected 4.5% increase. Therefore, from this perspective, the BOJ appears to be far from reaching its threshold for action. Therefore, maintaining the status quo would be the most prudent course of action for the time being.
On the date of publication, Naeem Aslam did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.