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The Daily Fix – Positioning for US payrolls

Chris Weston
Head of Research
4 Jul 2024

  • Leads from S&P500 futures and EU equity
  • Buyers in the CAC40, but the goodwill unlikely to last
  • The state of play in the ASX200 and NKY225
  • The US nonfarm payrolls playbook
  • Labour take the UK election but the GBP little changed

With US cash equities closed for Independence Day, the leads for the Asia open are missing, and we look at S&P500 futures which have reopened (after the early close) and are essentially unchanged from yesterday’s Asia cash equity close.

European equity bourses also come into play, where we see green on screen, and where the higher timeframes show the set-ups are looking quite attractive for longs. Those brave enough to have recently bought into the CAC40 index now need to see an upside break of 7725 to offer higher conviction the recent consolidation has legs.

French equity rises like a phoenix from the ashes, but the future seems wholly uninspiring - France is shaping up for a hung parliament after this Sunday’s 2nd round vote, but it will be an incredibly messy process, not just in forming a working government, but then having to cohabit with Macron as the President – new elections seem probable in 12-months.

Importantly, it’s hard to see a dynamic where any fiscal measures of substance are passed in France and sellers will likely reconnect with this dynamic in the weeks ahead. The EU Stoxx 50 (+0.4%) gets my vote here, and I like longs, covering on a move below 4913.

Our calls for the Asia equity open are predictably uninspiring, with the ASX200 likely to underperform the region, but even then, we’re seeing the index opening -0.2% at 7816. Aussie SPI futures have traded 3,700 contracts, a tenth of what they would typically trade, and while volumes will also be lighter today, there are two dynamics which are considerations for traders.



Firstly, after a solid day’s trade for the bulls yesterday, the index is testing both trend resistance at 7827 and the 25 Jan highs and that is causing some congestion and added supply. Secondly, while participation in US trade ahead will be reduced, as some take an extended break, the US nonfarm payrolls (NFP) loom large and hold real significance to market sentiment.

For momentum traders, the NKY225 is the index of choice at present, with price breaking out of the 39,340 to 37,700 range it held throughout May to June and has done so with real impetus. Granted, this is partly a weaker JPY story, but even if we price the index in USD terms it is working well and within striking distance of the 21 March highs.  Pullbacks should offer new opportunities to reengage with longs.

On the FX side, with US cash Treasuries closed a major driver for FX pricing has been missing – that said, many are confident to run short USDs into US payrolls, with the US exceptionalism looking broken, with the US economic data missing the mark consistently and by more than any other G10 FX country.

After Wednesday’s awful US ISM services, and the weaker weekly jobless and continued claims, the recession callers are starting to make their case known again. In the prior May NFP print the market reacted to the payrolls print of 272k above the higher unemployment rate, which was driven by a poor Household survey – we shall see what the market chooses to run with this time - the playbook for NFP is always hard to formulate, but this time around a surprise outcome in the unemployment rate could get far greater attention.

The goldilocks scenario in which the S&P500 and NAS100 resume the upside momentum, and where the USD finds modest downside, with Treasury yields lower by 3-5bp, likely comes in a scenario where we see cooling but nothing too dramatic. Here, the unemployment rate remains unchanged at 4%, with NF payrolls coming in a 180k to 220k range, with average hourly earnings at 3.9%. As always, the market will see what it wants to see, but the US 2-year Treasury will offer the cleanest read on how the market sees the data, where we see yields currently sitting at the recent 4.80% to 4.65% range lows – a downside break below 4.65%, and the USD may attract further selling.

A lower unemployment rate at 3.9% and yet another elevated payrolls print of 240k+ could see USD shorts cover. However, given the US economic data flow of late, I think the markets see a bigger reaction if we see a weak outcome, especially after Fed chair Powell detailed earlier in the week that the Fed may be forced to act if the unemployment rate rises.

AUDUSD daily


AUDUSD looks interesting given the upside break of the 0.6700 range highs – relative interest rate differentials are working in the AUD's favour, but this breakout needs to kick and that requires NFPs to come in soft, but not too soft that it causes a risk-off move in markets. For now, longs look the better trade, but I would look to cover on a move back below 0.6680.

We see good flow with GBPUSD moving into 1.2750, which was essentially a USD move and not a rush to buy GBPs, as GBPAUD is lower and EURGBP eyes a push into 0.8500. On the political front, and as most had predicted, the UK election has caused little fanfare in the GBP. Exit polls show Labour projected to get 410 seats, with the Tories 131 – perhaps not as bad for Sunak as some had projected, but this will hurt. Once the final results are known Labour will go about announcing its key cabinet positions and then have the unenviable task of fixing the NHS, pushing for the UK economy to hold the highest growth in the G7, transitioning to green energy, and improving childcare and education.

Staying on the political vibe, President Biden is due to interview on ABC today at 18:30 EDT (23:30 BST / Saturday 08:30 AEST) – will we get a surprise here?

Good luck to all,

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