Risk off as traders eye beaten down expectations for non farm payrolls tomorrow

Risk off as traders eye beaten down expectations for Non Farm Payrolls tomorrow
Joshua Raymond, Market Strategist, City Index commented:

“Traders sold out of risky asset classes today, continuing a theme from yesterday’s session after much weaker-than-expected US economic data raised concerns that Friday’s non-farm payrolls could badly underperform.

From 3pm yesterday afternoon, the FTSE 100 Index has lost 100 points. Though in truth, the 100-point fall came within the final hour of yesterday’s session and the start to today’s one. Since the initial sharp fall, the FTSE 100 has moved a mere 15 points within a tight trading range, emphasising the lack of vigour any buy side activity has seen despite the fall in prices.

A potential silver lining to the jobs report however could be that now with expectations fairly low, a strong number could ignite a relief rally for stocks and finish European indices on a high for the week.

Sector wise it is the traditional riskier stock sectors that have borne the brunt of today’s risk aversion; the miners and oil firms. Both sectors have fallen over 1% in trading and are the key drag on the UK Index. Fast behind them are UK banking stocks, with Lloyds Banking Group one of the heaviest fallers on the day.

Tobacco stocks, a typical defensive sector, however outperformed the FTSE’s fall, with the sector remaining flat on the day whilst travel and leisure firms gained, benefitting from the fall in crude oil prices over the last 24 hours.

Non-farm payroll estimates revised lower
Estimations for tomorrow’s non-farm payrolls have been revised down from 180k to 140k-150k after the sharply underperforming ADP employment change report on Wednesday. The ADP employment report was the worst reading since September last year. Should non-farm payrolls follow this trend there could be a real disappointment in the figures and this may serve to caution that US economic activity is slowing. Traders don’t always pay too much attention to the ADP report, though with several US economic indicators disappointing of late, traders are seeing this report as a potential ‘shot across their bow’ for tomorrow’s labour data.