Strong numbers across the board on the NFP release added to optimism in the financial markets on Friday night, however the spectre of a looming global trade war is keeping investors wary. The US job data came out with topside surprises on the headline NFP, the Average Hourly Earnings number and the unemployment rate. The US stock markets surged to the topside with the Nasdaq finishing the session up 1.5 % and the S&P just topping the 1% barrier, the dollar had a kneejerk topside reaction but then moved lower as the risk on trade led to an appreciation in most of the majors with the exception of the Jpy.
As expected the Asian stock markets and ‘risk on’ trades have opened strongly this morning, however the possible further escalation of trade disputes between the US and most of the other G7 nations is casting a shadow over the positive sentiment running through the market. China is set to renege on previous commitments promised to the US if the Americans go ahead with tariffs and more comments from Larry Kudlow to other (in fact most) trading partners accusing them of trade abuse will not calm investor fears. Investors will remain wary of these threats to global growth and will be prepared to adjust their views and positions accordingly (and swiftly) which could lead to further volatility in the week ahead.
We’ve seen a strong start to the week for the Aussie dollar as a strong Retail Sales print this morning has added to the risk on sentiment, with the currency now trading up near 0.7600. There are further risk events out this week which could see more volatility in the currency with the RBA meeting tomorrow and GDP and Trade Balance numbers due on Wednesday and Thursday respectively. Its’ relatively quiet in terms of fundamental data through the rest of the Asian session.
Into the European session and investors will be looking for a bit more stability in the Italian market after the populist coalition confirmed that they’d formed a government, however there could still be volatility ahead as the new administration beds itself in. Focus will move over to the UK later in the day with the release of the latest construction PMI numbers.
On the face of things, the fundamentals look good for further growth and topside for the markets this week, however once again those Geo-Political risks and trade concerns could very swiftly emerge to put a dent in those expectations and lead to a strong downside correction.