Global equities consolidate, in anticipation for all-important NFP report - Market Overview

Global equities consolidate, in anticipation for all-important NFP report  -  Market Overview

While waiting for the Non-Farm Payroll report scheduled for Friday, May 7th, the market are consolidating the gains from last week.

The ADP Non-farm employment figure rose to 742k but fell short of the 800k forecast. Even so, the evolution of the North American job market remains positive. Today's Unemployment Claims could give us an additional clue in this regard. However, it will most likely not have a major effect on financial assets unless it deviates a lot from the 540k forecast.

These economic results could impact the markets’ future. Higher employment numbers, corroborated with a lower unemployment rate, could increase the expectations for interest rate hikes, moving the U.S. Dollar.

Things are somehow different for the stock markets. Although higher employment figures do look favorable for stocks, higher interest rates could slow down the growth of companies sensitive to financing conditions. On the other hand, if inflation expectations grow at the same rate as the economy, this might not be positive for U.S indices.

Yesterday's ISM Non-manufacturing PMI data in the United States disappointed the market, showing a figure of 62.7 below the expected 64.3. The services sector is still not recovering in the way it would be desired, and therefore expectations of interest rate hikes could be slowed should it continue in the same direction. The U.S Treasury Bonds yields backtracked several basis points, with the news placing the 10-year benchmark below 1.60%, at around 1.56%.

Under these conditions, the U.S. Dollar lost part of the territory it has gained in recent days. In the case of the EUR/USD, the pair rebounded from the lows it had recently reached at 1.1990 to the 1.2050 area, through which the 100-day SMA line passes, which now acts as a pivot level for the pair.

The pair’s short-term evolution will largely depend on tomorrow's Non-Farm Payroll figure. A figure higher than expected could put additional pressure on the pair.

Also contributing to today's rebound was the Retail Sales report retail sales figure of 12% above the expected 9%. This could be seen as a good figure reflecting a recovery in the European economy, primarily motivated by the excellent rhythm of administering vaccines and the relaxation of restrictive mobility measures in European countries. In short, the pair is still in a consolidation period.

As we have mentioned a couple of days ago, GOLD would benefit if the dollar does not maintain the current short-term upward trend and if the forecasts of rate hikes recede over time. Also, the increase in inflation expectations could ensure that real interest rates are kept at minimum levels, providing support for the precious metal as a hedging asset.

At the moment, the technical level of importance is around 1800, the pivot level through which the 100-day SMA line passes.

Sources: investing.com, reuters.com.

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