Equities in the green as they prepare for Friday’s jobs data

Stocks edge higher as Chairman Powell sounds reassuring

The market continues to be driven by fundamentals, reacting to almost every single piece of data. We remain in the “bad data is good news” phase as the market yesterday tried to largely ignore the stronger ADP employment report, which has lost some of its predictive ability regarding Friday’s non farm payrolls, and focused on the weaker ISM services PMI.

While the decrease in the headline ISM was decent, the stock market probably got a bit excited when it drilled down the data and discovered that the prices paid subindex dropped to the lowest point since March 2020. This is probably the strongest indication to date of abating inflationary pressures in the US economy.

Therefore, tomorrow’s labour market report is even more important for sentiment. US stock indices finished Wednesday’s session in the green but there is angst and uncertainty about the short-term outlook which could quickly result in a sizeable correction if tomorrow’s data fails to point to a weakening labour market.

Fed Chairman Powell tried to downplay the importance of the stronger data prints and reassure the market about the Fed’s rate cut aspirations, but it is obvious that the US economic outlook remains positive.

This situation is fueling hawkish commentary from some Fed officials, which the market does not enjoy. On Wednesday, Atlanta Fed Governor Bostic, a 2024 voter, talked about the first rate cut taking place in the final quarter of 2024. Eight more Fed speakers will be on the wires during today’s session covering the entire spectrum of doves and hawks and potentially impacting today’s market sentiment.

Oil rallies as euro area inflation eases further

In the meantime, oil prices continue to rise with certain investment houses pointing to further upside. Various reasons could explain the current move including geopolitical developments, supply issues and the renewed dollar weakness, but some market participants are pointing to China’s growth picking up pace. If this is indeed the case, it could prove to be the most important development in 2024 so far with strong implications across the globe and especially the euro area.

Yesterday’s euro area aggregate inflation report confirmed expectations for a weaker print with the core indicator dropping below 3% for the first time since March 2022. There is a strong belief that the ECB is preparing for its rate cut announcement in June with the foundation possibly being laid out at next week’s ECB meeting. Today, the minutes from the last ECB meeting will be released but they do not tend to be market-moving.

Gold reached $2,300, bitcoin under pressure

Gold continued its journey north reaching a new all-time high above $2,300 earlier today, benefiting from the renewed dollar weakness. On the flip side, bitcoin remains under pressure, matching partly the US stock markets’ performance and preparing for an action-packed Friday session.