S&P500 At Seven Month High Following Jobs Data, ECB Holds Rates Steady, OPEC Shows Signs Of Optimism, ASX SPI Futures Up 40 Points

US equities closed higher on Thursday following employment data that shows the labour market continues to strengthen. The S&P500 & Nasdaq100 both finished 0.28% & 0.25% higher respectively as ADP employment for May grew by 173,000 narrowly missing estimates of 175,000, continuing jobless claims for May 21st increased modestly to 2.172 million from 2.160 million prior while initial jobless claims for May 28th dropped to 267,000 against estimates of 270,000. The chart below highlights that the area between 2,100 and 2,116 has been a key resistance level over the past twelve months, and while not enough on its own to suggest a pause or pullback in the short-term, momentum indicators now at highly overbought levels highlighting there is a growing risk. Looking ahead to the non-farm payrolls data tonight will be critical for determining whether the FOMC is likely to raise rates at the June 14-15th meeting, with estimates of a slight increase. Either way unless we see a major drop in the numbers the report should continue to add weight to the idea the FOMC will raise rates. At this stage July looks to be the more likely than June which makes sense as this would avoid raising rates prior to the Brexit vote on June 23rd, Fed Fund futures currently suggest a roughly 55% probability of hiking in July while June has dropped from 32% to 22% over the past two weeks.

Another event that is now out of the way is the OPEC meeting in Austria which concluded on Thursday, while the market did not have big expectations for the meeting we did see Saudi Arabia float the idea of reintroduction output targets for the group which were abandoned in late 2015. This shows there are attempt to mend differences within the group between nations such as Saudi Arabia and Iran, while no immediate impact it shows there is potential and may be support of oil in the near-term. Both WTI & Brent crude oil futures gained 0.33% & 0.44% respectively as data showed US crude inventories declined by 1.36 million barrels for the week ending 27th May. Prices getting above US$60 again may face a tough task as many higher cost producers have a break even cost of producing oil in the high US$50 region.

Also in Austria on Thursday the ECB rate meeting concluded leaving the deposit rate unchanged at negative 0.4% and asset purchases of 80 billion Euro's per month. The announcement in March to include corporate debt in these purchases and new longer-term cheap funding for banks will be implemented later this month with the first corporate debt purchases beginning on June 8th while long-term funding begins on the 22nd. As previous mentioned by there was speculation the ECB would raise forecasts at this meeting, this did not occur with inflation forecast to remain at 0.1% and 1.3% in 2016 & 2017 while Euro-Zone GDP will increase 1.4% & 1.7% over the same period. This is not an overly encouraging sign for the success of the program although we now need to sit back and watch the effects of the new stimulus and it remains likely the ECB will do the same, however if there is no improvement we may see the ECB extend the date of the QE program past 2017.

Locally the ASX200 closed 0.83% weaker on Thursday led lower by financials and resources (-1.16% & -1.04%) while consumer goods finished positive for the day, up 2.11% despite weak retail sales for April which grew at 0.2% in April down from 0.4% in March. Meanwhile ASX SPI200 futures are up 40 points in overnight trading suggesting a stronger open this morning. If you're interested in trading global markets but aren't ready for the risk, click here to open a free $100,000 Rivkin Trader account.

Data releases:

·         Chinese Caixin Services & Composite PMI (May) 11:45am AEST

·         Japanese Nikkei Services & Composite PMI (May) 12:00pm AEST

·         UK Markit Services & Composite PMI (May) 6:30pm AEST

·         Euro-Zone Retail Sales (YoY Apr) 7:00pm AEST

·         US Unmployment Rate & Non-farm Payrolls (May) 10:30pm AEST

·         US Trade Balance (Apr) 10:30pm AEST

·         US ISM Non-manufacturing Composite (May) 12:00pm AEST

·         US Factory Orders & Durable Goods Orders (Apr) 12:00pm AEST

Source: Rivkin, Amibroker
To view the Rivkin economic calendar and Global Markets matrix, members can click here.

This article was written by James Woods – Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3600.