US and European futures are trading lower as traders are picking up the momentum where they left off yesterday and the trading session in Asian hasn’t have helped as most of the Asian indices tanked further on the final trading day of the week. Traders are likely to remain on the side and continue to add more into their short positions as the primary focus among them is the on-going war in Ukraine between Russia and Ukraine. Oil prices are something that traders are keeping a close eye on as they continue to soar and it is highly likely that natural gas, crude oil and brent will continue their bull run without much hesitation.
Moving ahead, traders and investors are focused on one thing and one thing only, and that is today’s US NFP data. The risk isn’t tilted to the downside because the tone set by the US ADP data is optimistic mostly. The private payroll number released on Wednesday confirmed that employment conditions have improved, and we are likely to hear an echo of this message in today’s number.
The following are some arguments that support the case for strong US NFP data today. We have seen a better number for the US Consumer Confidence index. The 4-week average for Jobless Claims has also started to decrease. The University of Michigan Consumer Sentiment Index has come away from a level that we have not seen in nearly ten years. We have seen the improvement in the US ADP employment data, and the US ISM Services Employment Component data has also started to move in the right direction.
The odds for a lower US NFP aren’t that strong but they are there for the following reasons: we have seen only a minor improvement in the ISM Manufacturing Employment and Consumer Confidence remain highly fragile due to the on-going geopolitical situation in Russia and Ukraine.
The big question for traders is how the market will react to a weak or a strong number, especially now that bulls are losing their mojo. For instance, the Nasdaq 100 index is struggling to stay in positive territory, and we have seen more negative days than positive one during the past two weeks. The Nasdaq index is the index which has lost most of its momentum in comparison to the other two indices such as the S&P 500 and the Dow Jones.
The forecast for the US NFP is 407K, which is lower than the previous reading of 467K. The unemployment rate is expected to drop a little further to 3.9%, but the Average Hourly Earnings m/m is expected to drop to 0.5% to 0.7%. Overall, the bar is set low once again, and if the actual number matches the forecast, we may see confidence strengthening among traders, which could spur a bull run for the dollar. On the flip side, if we see a number that comes out weaker than the expectations, we could see the equity markets tanking further as traders will think that the Fed is getting ahead of themselves and increasing interest rates may not be the best strategy at this moment.
The geopolitical tensions continue to hit a higher notch day by day. Yesterday, Russia attacked a nuclear site in Ukraine and on the back of that the UK is calling for emergency UN Security Council meeting. Remember one of the reasons that Russia attacked Ukraine was that it didn’t want Ukraine to enrich its nuclear power plant to weapon grade. The US and many other countries have hinted many times that they are going to provide lethal weapons to Ukraine to fight against Russia which has only made President Putin angrier.
Traders are highly sensitive to all of this war related news and every single headline is keeping them on edge. The biggest fear among investors and traders is that the US and its allies may sanction the Russian energy sector especially natural gas and oil. Remember, yesterday we heard from the German Economy Minister that Germany is heavily reliant on natural gas and if Russia cuts off its natural gas, we will have a serious crisis in Europe.