Global economic growth concerns have been placed in the front row once again as the coronavirus takes hold of the world and prompted the FED to act. The markets have been under immense pressure as market participants try and make sense of it all.
Looking at the CNN Business Fear & Greed Index, market participants are experiencing extreme levels of fear now. In this note we cover all the basis on what we can expect this Friday.
Fear & Greed Indicator
The market rebound from the lows on Monday have come with much jubilation, but will it be short lived as the supply and demand disruption filters through. Some analysts call for dip buyers to enter while others say it’s not the time to get excited as the disruption from the coronavirus (COV-19) is still to filter through to the global economy.
The U.S. Federal Reserve's Federal Open Market Committee (FOMC) surprise rate cut
The U.S Federal Reserve (FED) surprised markets by cutting interest rates by 50 basis points outside of a meeting. This was last done in 2008 which just goes to show how problematic the coronavirus has become for the global economy.
Fed chair Powell said at his press conference that fundamentals “remain strong” but the spread of the coronavirus “has brought new challenges and risks."
Trump soon went out on Twitter to say “The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!”
Events leading up to the Jobs report on Friday are:
US ISM Manufacturing Purchasing Managers Index (PMI)
The ISM Manufacturing PMI
The ISM Manufacturing PMI data was reported and came in lower than analysts expected at 50.1 and this excerpt from our previous note should be taken note of “Seasonal factors might come into play from next month as well as the aftereffects of the dreaded corona virus disruption on the manufacturing sector.”
U.S. ADP Non-Farm Employment Change
The U.S. ADP Non-farm Employment Change
The U.S. ADP Non-farm Employment Change is an excellent predictor of the Non-Farm Payrolls report as the ADP Non-Farm Employment Change measures the monthly change in non-farm, private employment. The U.S. ADP Non-farm Employment Change is released two days ahead of the NFP jobs number.
The ADP data is scheduled later today at 15:15 SAST with the ADP Non-farm Employment Change expected to come in lower from the previous month at 176K.
US ISM Non-Manufacturing Purchasing Managers Index (PMI)
The ISM Non-Manufacturing PMI
The ISM Non-Manufacturing PMI report is a composite index that reports on business and measures Business Activity, New Orders, Employment and Supplier Deliveries. The index is also used as an indicator to judge how well the economy is performing. A reading above the 50 indicates that the Non-Manufacturing sector is expanding while a reading below 50 indicates a contraction.
The Non-Manufacturing PMI number is expected to come in significantly lower than the previous month at 54.9 and will be released on later today the 4th of March 2020 around 17:00 SAST.
Non-Farm Payrolls (NFP) outlook
The number of new Non-Farm jobs is expected to decrease to 175K from the previous month's impressive 225K Non-Farm jobs.
The Average hourly earnings (M/M) number is expected to increase to 0.3% from the previous month and the Average hourly earnings (Y/Y) is expected to increase slightly to 3.1%
This is a crucial figure to watch, and if this number disappoints, it will signal a weak wage inflation outlook in the U.S.
U.S. Unemployment Rate:
The U.S. Unemployment Rate measures the percentage of the total workforce that is unemployed and actively seeking employment during the previous month. The U.S. Unemployment Rate is expected to remain unchanged from the previous reading at 3.6% unemployed.
Why is the jobs number important?
The Non-Farm Payrolls report (NFP) is treated as an economic indicator for people employed during the previous month, and the number being released will have a direct impact on the markets. In the United States, consumer spending accounts for most of the economic activity, and the Non-Farm Payrolls report represents 80% of the U.S. workforce. Farmers are excluded from the employment figures due to the seasonality in farm jobs.
Technical Analysis outlook on U.S. Indices for the U.S Non-Farm Payrolls (NFP)
Wall Street 30
The Wall Street 30 index along with the other U.S Indices have seen its worst week in years with more volatility expected over the coming weeks. We have seen some major swings in the price action from the recent lows with dip buyers entering the arena. The FED’s surprise rate cut did not delivering the anticipated result as markets continued to sell-off after the news.
Chart: Daily Wall Street 30
Technical points to look out for on the Daily Wall Street 30:
- The market correction is still in process and technically a correction can take anything from 3 weeks to 3 months to play out.
- Price needs to close above the 27365-resistance level to negate the market correction at this stage of the race.
- The Relative Strength Index (RSI) is over sold but that does not mean market should rebound as over sold levels can persist for weeks.
Scaling into a 4H chart of the Wall Street 30 we might see signal earlier which might provide better entries on this time frame. Here we can see why it is mentioned above to watch the 28920-resistance level closely.
4H chart of the Wall Street 30
Technical points to look out for on the 4H Wall Street 30:
- The price action is below the 50-day SMA which might provide resistance and drive price lower to the support level.
- The Relative Strength Index (RSI) is pushing higher from the oversold level.
Take note: that the outlook and levels might change as this outlook is released before NFP and before the current days (Wednesday 4th of March 2020) U.S Market open.
What to trade internationally:
- Major indices to look at will be the S&P 500, Wall Street 30, Nasdaq 100
- Major Forex pairs to look at will be EUR/USD, GBP/USD and USD/JPY
- Commodity to look at will be Gold.
What to trade locally:
- Index to look at will be the ALSI
- Forex pair to look at will be the USD/ZAR
- Rand Hedges (BTI, CFR) and Rand Sensitives (Banks and Insurers)
How to trade the Non-Farm Payroll (NFP) report: The Strategies
There are many ways to trade the Non-Farm Payroll (NFP) report, and here are a few strategies traders look at:
- The Early birds: traders who will take an early position before the jobs number is released in anticipation that the directional movement the event will cause will be in their favour.
- The Scalpers: as the data is released, these traders will scalp and try and capitalize on the volatility that is created by the data, positively or negatively.
- The calm and calculated: as the market digest the results of the Non-Farm Payroll (NFP) report and after the volatility swings have occurred, these traders will take a position on the momentum of the market.
When and what time is the US NFP (Non-Farm Payroll) announced in South Africa?
Non-Farm Payrolls are usually reported on the first Friday of the month, whereby the number of additional jobs added from the previous month is released. The US Non-Farm Payroll number will be released locally on Friday the 6th of March 2020 at 15:30 SAST.
Sources – Bloomberg, KOYFIN, CNBC, MetaTrader5
Any opinions, news, research, reports, analyses, prices, or other information contained within this research is provided by Barry Dumas, Market Analyst at GT247 (Pty) Ltd t/a GT247.com (“GT247.com”) as general market commentary, and does not constitute investment advice for the purposes of the Financial Advisory and Intermediary Services Act, 2002. GT247.com does not warrant the correctness, accuracy, timeliness, reliability or completeness of any information which we receive from third party data providers. You must rely solely upon your own judgment in all aspects of your trading decisions and all trades are made at your own risk. GT247.com and any of its employees will not accept any liability for any direct or indirect loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on the market commentary. The content contained within is subject to change at any time without notice. Past performance is not necessarily an indication of future performance. The value of a financial product is not guaranteed. The value of a financial product can go down or up due to various market factors. The graphs are for illustrative purposes only.