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All eyes on NFP, traders must filter noise

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By Naeem Aslam  

Friday is an important day for markets, and market players are nervous about the most important economic data on the planet — the US non-farm payrolls data.

The US ADP data usually sets the tone for the NFP data, and given that we had a big surprise for the NFP data last month and the ADP number has already confirmed that the jobs market is robust, traders should expect another big surprise to the upside. The actual number could easily be above the forecast of 224,000 — remember the last reading came in at 339,000.

If the jobs number comes in stronger than the forecast and the actual reading shows there is an echo of Thursday’s message, then market players are likely to become a little more risk averse as the expectations will be that there will be a couple of rate hikes from the Fed.

However, market players and speculators are getting ahead of themselves and aren’t paying attention to the fundamentals.

A strong labour market and weak oil prices don’t go together; there is something missing here that needs attention. In addition, inflation in the third quarter is going to move a bit closer to the Fed target, and the moment it begins to fall in the 3 handle, it is highly likely that speculators will make a U-turn, and there will be more conversation about a rate cut or extended period of rate pause.

Thus, the current rally in Treasury yields and the drop in the equity market is actually an opportunity to jump on the trend, which has posted strong results for the first half of this year.

In addition, markets need some sort of excuse for selling off, and the current strength in the labour market is giving traders an excuse to take some profit off the table.

But the overall direction of the equity market is very much intact.

Bitcoin bulls optimistic

The crypto-king has become a darling among institutional traders, who are eager to see if BlackRock is going to win where everyone else failed.

The current momentum in Bitcoin is certainly helping other meme-coins as well, which are also moving higher as Bitcoin begins to move.

In terms of technical price level, the current move is more about the test of the next resistance level, which is at $40,000, and anything before that doesn’t have any significant value.

Therefore, the price action will continue to move higher in the coming days, and there is a possibility of ‘buy the rumour, sell the fact’, which means that the Bitcoin price may continue to move in the event of the bitcoin ETF getting approved.

When it actually sees the light of day, we may see a bit of a sell-off.

Gold volatility to stay

Gold continues to remain volatile, and we could see major volatility coming into the market. This is because the NFP jobs number is going to bring significant movement in the dollar index, and any strength or drop in the dollar index would influence the gold price.

For now there are more odds stacked in favour of bears; having said this, it is extremely important to continue to pay attention to the support of $1,900, which the price continues to hold.

But the odds are we may see another leg to the downside, and this means the price level may visit $ 1850.

Oil prices need to fall

Oil traders are mainly betting on one thing, that OPEC and its members will continue to play an active role in the market and that they will continue to reduce prices.

Demand isn’t actually picking up, and the Saudis and Russians — the two big players in OPEC-plus — are determined to do whatever it takes to reduce the supply to keep prices at what makes sense to them.

From a trading perspective, anything that makes the crude oil prices trade below the 70-handle opens the room for another action and reaction from the Saudis.

Having said this, if oil prices need to see a serious rally, we need the demand equation to pick up, and the most important factor here is China.

OPEC can keep prices artificially higher by cutting prices, but the fact that matters most is demand. This part of the equation is more likely to improve in the third quarter of this year as the PBOC is still very much committed to its dovish monetary policy stance.

 

Naeem Aslam is Chief Investment Officer at Zaye Capital Markets.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Zaye Capital Markets.