September 2, 2020

Dow Jones Futures Trade Higher Ahead of US ADP Data

Dow Jones Futures Trade Higher Ahead of US ADP Data

U.S. stock futures are trading higher today as traders want to continue to build on yesterday’s momentum. The U.S. equity indices recorded another record high, and the Dow Jones finally erased all the losses for the year.

Given the strength that we are seeing in the U.S. stock market, many are asking themselves how long the Fed will continue to support the economy when the equity markets have recovered all of their losses.

Many believe that the Fed could have another thought about their current monetary policy if the economic numbers start to print a more optimistic picture. However, one of the key factors to keep in mind here is that the real economic activity will only kickstart when we have a coronavirus vaccine. 

The recent comments from Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Disease, have further increased the hopes for a potential coronavirus vaccine. He believes that a potential vaccine can be earlier than anticipated, but only if the clinical trials continue to produce overwhelmingly positive results.

On the fiscal front, traders are still waiting for the second stimulus aid package that has gone nowhere. This is because of the disagreement between Democrats and Republicans.

Yesterday, Steven Mnuchin, the U.S. Treasury Secretary, urged politicians to break the deadlock on the stimulus front as the U.S. economy strongly needs another package in order to have a durable rebound.

Fundamental News

The U.S. ISM manufacturing number supported the dollar index and got the index off its lows of the day yesterday. The ISM number jumped to its highest level since November 2018, and this was chiefly due to a robust rebound in new orders and prices. For investors, this news brought fresh hopes of economic recovery for the U.S., as they weren’t expecting the number to be that good.

All eyes will be on the upcoming U.S. ADP employment change. This data point sets the tone for the mother of all economic numbers, the U.S. NFP, which is due on Friday. The forecast for today’s number is 125K against the previous reading of 167K. 

Later today, we also have the U.S. Crude Inventory number, and the forecast is for -2.0M against the previous reading of -4.7M.  Brent and Crude oil are trading higher, and if the numbers come in better than expected and confirm another drawdown, we could see further improvement in oil prices.

Currencies

On the currency front, the euro-dollar crossed the 1.20 mark for the first time since 2018, but the upward move was short-lived as the dollar rebounded from its lows.

The euro long trade has been extremely overcrowded, and the market was expecting a correction. The current move could easily push the currency pair back towards the 1.17 mark.

Precious metals

As for the precious metals, gold is trading lower today. The yellow metal snapped three days rally yesterday, mainly due to the strength in the dollar. The price made a high of $1,992–just shy of reaching the $2,000. For now, it seems like the gold price is likely to continue to consolidate, and only the U.S. NFP event can bring substantial moves for the precious metal. The near term support for the gold price is just above the 1,900 mark, and the only meaningful resistance is $2,000.

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