Data and Event Pulse: Nonfarm Payrolls Beats Expectations – ANZ
Analysts at ANZ Bank New Zealand Limited explained the key events and data from Friday’s close.
US Labour Market Continues to Tighten:
“Non-farm payrolls came in at 250k versus 200k expected. Manufacturing added 32k and services 179k. The participation rate rose two tenths to 62.9%, while the unemployment rate was steady at 3.7%. However, the main headline was a lift in wage growth to 3.1% y/y (0.2% m/m), the highest since 2009. Admittedly there was a base effect at play, with October 2017’s wage growth -0.2% m/m.
ECB Mulling More Stimulus:
MNI quoted ECB sources: “The European Central Bank is looking at launching another wave of cheap funding for banks to boost a eurozone economy which is beginning to sag.”
There were media reports over the weekend that UK PM May has struck a tentative Brexit agreement involving the entire UK remaining in a customs union. While her spokesman called it “speculation”, it was sufficient to give GBP a lift on the open.”
EUR/USD Price Forecast – EUR/USD Trades Flat As Momentum from Weaker USD Fizzled Out over Weekend
The EURUSD pair traders flat as investors await updates from US midterm elections.
The EUR/USD currency pair was solidly bid on Friday and looked set to take out the upper hand rising on momentum influenced by broad based weaker US greenback despite lack of fundamental support but a better-than-expected non-farm payrolls number and the confusion surrounding the US-China trade deal put a bid under the greenback as trading session opened for the week. An overwhelming majority of opinion polls suggest that the Democrats are likely to win back the House, but the Republicans will likely keep the Senate, leading to a divided Congress. Major market moves are ruled out if the midterm elections do produce a split Congress as expected. As of writing this article, the EUR/USD pair is trading flat at 1.1390 up by 0.01% on the day.
Pair Likely To Trade Flat As Investors Observe US Election Proceedings
The EUR/USD pair had good two-way moves on Friday and finally ended the week on a downbeat note. When looking at the price action in daily chart, the pair seems to be trapped in a falling wedge pattern. A Republican victory in both houses, however, could mean more fiscal stimulus, in which case a falling wedge breakout may remain a distant dream. On the other hand, a Democrat victory in both chambers may hurt the USD and could yield a falling wedge breakout in the EUR/USD (a bear-to-bull trend change). This is because Democrats want to raise the corporate tax rate to fund social programs. The caution ahead of the midterm elections will likely keep the EUR/USD flat lined today.
The shared currency was further weighed down by reports that the European Central Bank (ECB) was considering a second round of a long-term refinancing operation – LTRO – to support European banks at its December meeting. This comes amid concerns over drama surrounding Italy’s 2019 budget proposal and worries about the health of country’s banks against the backdrop of their large sovereign debt holdings. Today’s Euro-zone economic docket lacks any major market-moving economic release and hence, the USD price dynamics might continue to act as an exclusive driver of the pair’s momentum ahead of the release of the US ISM non-manufacturing PMI, later during the US trading session. Expected support and resistance for the pair are at 1.1360, 1.1330, 1.1300 and 1.1420, 1.1455, 1.1490 respectively.
Stock Market News
Buy, Sell or Hold: Ten ways to Trade the U.S. Election
Buy the dollar but sell FAANGs, buy real estate and machinery, but sell the overall market. Or, do nothing at all.
Investors heading into Tuesday’s U.S. congressional elections are trying to fathom how best to predict the outcome and profit from it.
After two years of wielding no practical political power in Washington, the Democratic Party faces a strong chance of winning control of the U.S. House of Representatives in next week’s election, with Republicans likely to keep the Senate.
These are some of the ideas that analysts, strategists and traders have:
Buy Any Dollar Dip
If the greenback drops against other currencies on the election result, Citigroup says it should be bought. “Midterms are less likely to mark a major turning point for USD than some investors fear,” Citi analyst Todd Elmer said in a report.
There is no strong historical relationship between midterms and the path of the U.S. currency, making a Democratic House victory unlikely to thwart the dollar’s rally, Citi said.
FAANGs Could Fall on Divided Congress
One policy initiative that looks viable under a divided Congress is increased regulation of social media companies, said Oliver Pursche, chief market strategist at Bruderman Asset Management in New York. “That is an area where both the Trump administration and Democrats agree,” he said. “We expect that to occur in 2019.” If that happens, shares of Facebook, Twitter and Alphabet, which have come under increased pressure this year, could have more downside.
Buy Construction Stocks
Dryden Pence, chief investment officer of Pence Wealth Management in Newport Beach, California, is looking to buy construction-related stocks, as he anticipates that an infrastructure bill, one of Trump’s agenda items, will come to pass regardless of which party controls Congress. “For infrastructure, the most important thing about the election is that it will be over,” he said. Among the stocks Pence likes are United Rentals Inc (URI.N), AECOM (ACM.N), Jacobs Engineering Group Inc (JEC.N) and Vulcan Materials Co (VMC.N).
Buy Reits on Democratic Win
Scott Crowe, chief investment strategist at CenterSquare Investment Management, a manager of real assets, said if the Democrats win the House, it likely signals the end of tax cuts or an infrastructure bill for Trump ahead of the 2020 presidential election. If this happens, it would be good news for the 10-year bond yield, and “a lower 10-year bond yield is good news for REITs.”
Buy Machinery Stocks
Analysts at Stifel see Trump quickly proposing a “Highway Bill” when the House takes office if Democrats win control of the lower chamber That may lead to increased political rancor and Trump may take the high road of “the people’s business” by proposing a transportation bill, benefiting Caterpillar (CAT.N) and Deere & Co (DE.N).
Cut EM for Red Repeat
Those positioning for a further poll shift toward Republicans should be prepared for emerging market weakness, wrote Michael Zezas at Morgan Stanley in a research note.
“The potential for a stronger USD and increased leeway for further trade escalation would likely weigh on emerging markets risk appetite. Already cheap valuations would likely protect parts of EM, yet we think Asia would still be at risk due to trade linkages and previous strong equity inflows. Our global EM strategy team suggests short KRW, SGD, TWD with PHP, IDR and INR also vulnerable.”
Expect Volatility to Fall
Some investment strategists are expecting volatility to ease after the U.S. midterm elections as the elimination of at least one uncertainty the market is facing right now will give traders less reason to worry regardless of what the outcome is.
Parag Thatte, equities strategist at Deutsche Bank in New York says: “Our trading desk thinks betting on volatility reducing after the election would be a good trade right now.”
Expect Biotech to Fall
If Democrats take control of the House and Republicans continue to have an edge in the Senate, UBS Wealth Management analysts say that among the areas where the president and Congress could find common ground are drug price controls and infrastructure spending; the former could pressure large pharma and even biotech stocks lower, or limit their gains, while the latter could boost those in engineering, construction and building materials.
Don’t Believe the Polls
BMO Capital Markets analysts Jon Hill, Ian Lyngen and Ben Jeffery wrote in a recent note that many of their clients are skeptical of political polls on the congressional elections. That skepticism suggests that current valuations do not fully reflect the polls’ expectations and Treasury yields may still move down if Democrats take control of the House of Representatives. The analysts also wrote that a potential error in the polls might not necessarily skew toward Republicans, allowing for the possibility of a bigger Democratic win than is currently projected.
“In our view, investors should avoid making investment changes based purely on fears or speculation of election outcomes,” said analysts at Wells Fargo Investment Institute.
It is more important for investors to maintain and follow their longer-term investment plan, and await signs of action in Congress, they said.
Amazon in Late-Stage Talks with U.S. Cities for Second Headquarters
Amazon.com Inc (AMZN.O) is in late-stage talks with Dallas, New York, the Crystal City area of northern Virginia and a few other candidates for the location of its second headquarters, the Wall Street Journal reported on Sunday.
Talks with the leading contenders are likely in different phases, while discussions with some of the others on Amazon’s shortlist have cooled, the newspaper reported, citing people familiar with the matter.
The world’s largest retailer may announce plans to place smaller operations in cities that come in as runner-ups, sources told the WSJ.
Seattle-based Amazon is in talks with JBG Smith Properties (JBGS.N) about the real estate it owns in Crystal City, while negotiating with Virginia officials on incentives, the report said.
Amazon’s final decision could be announced this month, the WSJ reported.
The retailer previously announced 20 finalists in North America for its planned investment of $5 billion and 50,000 jobs.
In September, Amazon founder and Chief Executive Jeff Bezos said the company would announce a decision on where it would build a second headquarters before the end of the year.
Amazon did not immediately respond to Reuters’ request for comment.
Crypto Prices Advance; Ripple to Open Offices in Middle East
Cryptocurrency prices traded higher on Monday. XRP gained 3% following reports that Ripple was “seriously planning to enter the Middle East market.”
Bitcoin gained 1.6% to $6,465.9 by 11:31 PM ET (03:31 GMT) on the Bitifinex exchange.
Ethereum jumped 4.6% to $209.04 , and Litecoin rose 4.7% to $53.606. XRP traded 3.6 % higher to $0.4650.4.
Speaking at the recent Global Islamic Economic Summit 2018, the global head of infrastructure innovation for Ripple, Dilip Rao said the crypto exchange is considering setting up an office in the Middle East. The exchange currently has offices in London, India, San Francisco, New York, Luxembourg, Sydney, and Singapore.
“Our focus initially is on cross-border payments because we think that’s where there is the most friction. In this part of the world, there is a huge requirement for cross-border transactions. This will support the economy both within the region and the rest of the world,” said Rao, who then highlighted the importance of the Middle East as a new market for the company.
He added that Ripple has so far signed about 200 institutions from different countries with many of them being from the Middle East. The list of clients reportedly includes the Saudi Arabia’s Al-Rajhi Bank, as well as Kuwait Finance House.
In other news, UK-based financial company deVere Group has launched an actively managed crypto fund.
The offering, called deVere Digital Asset Funds, was launched in partnership with Dubai-based hedge fund manager Dalma Capital Management and provides investors with diversified exposure to digital coins with reduced volatility.
Nigel Green, founder and CEO of deVere, said that virtual coins are “part of mainstream finance.”
“Their momentum continues to gain traction as both retail and institutional investors increasingly value the need and demand for digital, global currencies in today’s ever-more digitalised and globalised world,” he said in a press release.
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