Subdued trading on increased trade war fears and ahead of NFP

European markets have started the final session of the week in a fairly subdued manner, given the news that Trump is considering slapping further tariffs on $100 billion worth of additional Chinese goods in retaliation of China’s response. Asia, sold off heavily at one point, before regaining poise and closing mixed overnight.

The FTSE is currently down 0.15%, paring some earlier losses within the first hour of trading. Miners are notable decliners; tracing metal prices lower on the fallout from increased Sino - US trade tensions. 

Whilst the pain for retailers showed no signs of abating, as Marks and Spencer and bellwether Next topped the FTSE loser board following downgrades from Citigroup, signalling more trouble ahead for the sector.

NFP in focus

Currency traders are showing signs of caution, with the dollar trending broadly sideways versus the majors ahead of the US non-farm payroll release at 12:30 GMT, which is followed by a speech by Fed Chairman Jerome Powell at 17:30 GMT on economic conditions, potentially making for a volatile afternoon for the dollar.

NFP expectations are for the headline job creation of 198k jobs in March, well below the surprisingly high February reading of 313k. Unemployment is expected to show continued tightening of the labour market with unemployment dipping from 4.1% to 4%, this would be its lowest level since 2000. 

Finally, average earnings are forecast to tick up to 2.7% year on year up from 2.6%.

The ADP private payroll data came in higher than expected so we could be in for a stronger NFP headline figure. However, it is worth keeping in mind that weather is still likely to play a role in the March NFP report and traditionally the ADP payroll has had difficulty capturing weather effects, so a downside surprise on the headline figure shouldn’t be discounted.

As with recent reports, the focus is expected to remain principally on average earnings growth. We only have to think back to February’s reading and the market turmoil caused by a stronger than expected average earning reading. 

Traders are undecided as to whether the Fed are looking to raise rates a total of 3 or 4 times across this year, a higher than forecast reading today could help boost optimism for 4 hikes, lifting the dollar, potentially sending USD/JPY to 108.00

Powell speech to give clues on policy?

Jerome Powell is due to speak on the US economy later today and investors will be listening closely for any clues on monetary policy. 

There hasn’t been much change in the state of the US economy since Powell’s last appearance just a few weeks ago, with economic data approximately even and inflationary pressure equal. 

However, traders will also be keen to see what if anything Powell will say over the trade tensions, a subject which has unfazed the Fed so far.