A marginal rise of 0.15pc in the FTSE 100 puts it at the top of the European markets leaderboard right now. Germany’s Dax is flat while France’s Cac is down by 0.33pc right now. The pan-European Euro Stoxx 600 is also flat, with traders holding their breath for a key US payrolls report due out this afternoon.
The 1.30pm announcement is expected to show America’s private sector add 750,000 jobs to the economy in August. Investors are eyeing it as a key influence on the Federal Reserve’s decision on when to taper from its current level of making $120bn of asset purchases a month, the liquidity that has been behind stock markets’ huge jumps since the start of the pandemic.
A figure much lower than the expected 750,000 could push traders to pile into stocks, analysts predict, as it would signal a weaker than expected economy and therefore no slowdown in the Federal Reserve’s rate of support. A figure much higher could have the reverse impact, triggering a sell-off in anticipation of a faster and steeper tapering.
If it’s much of a guide, a separate measure of US payrolls in August found they fell far short of an expected 614,000, at 375,000. However, the survey, from ADP, has proved unreliable in the past.
Jeffrey Halley, senior market analyst at trading platform Oanda, said:
A number lower than 600,000 jobs will push back tapering expectations from the Fed. That will see markets “buy everything” and sell the US dollar. A number nearer to 1m jobs will have the opposite effect, sell everything and buy the US dollar, perhaps ships some bonds out the door as well. This scenario is likely to be more violent as the Street has hitched its wagon to the first scenario this week. A number around expectations will be a bit of a meh for me, giving us no clarity one way or the other. The result will still be “buy everything”, just less vigorously.
Michael Hewson, chief market analyst of CMC Markets, said:
The big question is whether this really matters in the wider scheme of things, and in terms of US monetary policy the answer has to be probably not that much, particularly given the aftermath of Jay Powell’s comments last week at Jackson Hole, which laid out slightly more clearly the pathway to a tapering announcement, and which helped pull the rug out from underneath the US dollar.
Attention will soon shift to this month’s Fed meeting, in terms of a timeline towards a reduction in the monthly asset purchase program. A poor report won’t change the likelihood of a tapering of purchases, but it will affect the pace, timing and scope of one, potentially pushing it into next year. A poor number could also push the US dollar even lower, and on course for another weekly decline.