IG Markets - Afternoon Thoughts

IG Markets - Afternoon Thoughts

Across Asia, markets have sidelined today, as investors exercise caution ahead of tonight’s US non-farm payrolls and unemployment rate data. Adding to the caution is a lack of a solution from the Greek debt negotiations. Despite the ongoing delays, investors are surprisingly still patiently waiting for final agreements on the Greek debt swap and second Greek bailout. After having held steady for most of the morning session, Asian markets have actually now started to drift in typical Friday afternoon fashion.

The Nikkei and ASX 200 are both down around 0.3%, while the Hang Seng is lower by 0.2%. US and European markets are pointing towards a relatively flat start given the mixed leads.

In US trade, investors were encouraged by better-than-expected US jobless claims data and relatively upbeat comments by Fed chairman Ben Bernanke, but Wall Street was flat to mixed late in the US session, as the market awaits the key US jobs data. US non-farm payrolls, due at 13:30 GMT, likely rose by 150,000 after increasing 200,000 in December, according to a Reuters survey. The unemployment rate is seen holding steady at a near three-year low of 8.5%.

Should the data be weaker or stronger than expected, it is going to be an interesting night for the US dollar given the implications a variation has on the Fed’s position. A weak read will probably be interpreted as an indication that QE3 is needed to help the recovery. This, as we already saw earlier this week, is positive for risk assets and negative for the US dollar. On the other hand a stronger-than-anticipated read could be interpreted as a good indicator that the global economy is on track for a recovery. This would aid risk assets and reduce the need for safety. As a result, two completely different outcomes could easily have the same effect on the US dollar.

On the European front, negotiations between Athens and private creditors over a debt swap deal continued to drag on, but there was some comfort provided by comments from the EU's Olli Rehn (Vice President) who said that eurozone finance ministers aim to agree on a second Greek bailout on Monday, February 6. Risk assets will also feel encouraged after Premier Wen Jiabao comments. Speaking with visiting German Chancellor Merkel, Chinese Premier Wen Jiabao noted that China was considering 'greater involvement' in the EFSF and ESM stabilisation funds. We might get further information on China’s intention later today.
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