Stock Markets Pivot Focus to U.S. Non-Farm Payrolls – Increased Expectations of Rate Cuts

The week ends with traders looking to NFP data for further clues on Fed action in November.

Analysts expect today’s NFP count to show an increase of 140k new jobs, just short of 150k, which is considered as supporting an expanding economy. Usually, the higher jobs number the better stocks perform, in the current environment that may not be the case.

As seen ion other occasions, a strong number deteriorates the likelihood of Fed action on interest rates. While a lower number is considered as opening the door for the Fed to cut rates. The reasoning being that the central bank has the protection of job creation as mandate along with inflation.

The Fed Fund futures market is pricing a probability of 65% for 25 basis point cut in rates for the November FOMC, according to the CME FedWatch tool. This view couples with the perception that the ECB is likely to cut rates at its October meeting on the 17^th.

Eurozone Stocks Gain

Stock in the common currency area gain on today’s open with the CAC up 0.46% and the DAX up 0.30%. The CAC has seen the likelihood of the recently appointed prime minister passing a budget next week.

But it could also be a technical rebound as the index dropped over 4% in four straight red sessions from Monday through Thursday. The DAX also had 4 consecutive losses, declining 2.4%.

The difference between the two is that the German stock index set a new all-time high last Friday. The new ATH leaves the door open for further high, especially if forward guidance from the ECB leaves the door open for further cuts in December or January.

UK Stocks Continue to Languish

The FTSE dropped 0.30% this morning amid renewed concerns of government fiscal policy. The Labour government has stated that new tax hikes will be likely to fix a ballooning deficit and national debt.

Today’s New Car Sales data showed an increase of 1%, but that was short of analysts’ expectations of an increase of 2.5%. The data adds to several European automakers dropping profit forecasts and announcing layoffs.

The FTSE index has been range bound over the past 9 trading sessions, between 8,226 and 8,353. The uncertainty over government policies in the upcoming budget and the schedule of BoE action on rate cuts has created a lack of direction.