Risk On, But For How Long?

  • Risk on Bid continues but stalls a bit
  • UK, EU final PMIs bit better
  • Nikkei 1.29% Dax 1.75%
  • US 10-Year Yield 0.70%
  • Oil $37/bbl
  • Gold $1716/oz
  • BTC/USD $9522

Asia and the EU

  • GB Markit Services 29 vs. 28
  • EZ PMI Composite 32.3 vs. 31.4

North America Open

  • US ADP nonfarm employment change 8:15
  • US ISM Non-Manufacturing 10:00

It is still risk-on in the markets in European trade, but the move is starting to stall ahead of key levels in the S&P 500 and NASDAQ.

Overnight, investors took solace in the fact that protests in the US were largely peaceful, with little of the looting and property damage seen the last few nights, although protestors in major cities ignored the curfews.

The tone in the markets remains generally positive, as traders steel themselves for a slew of economic data from the US. Today, the calendar brings the ADP report and the ISM non-manufacturing data, both of which are expected to show very negative readings, with ADP projected to register a loss of -9M jobs and ISM to print deep in the contraction territory at 35.

Still, what will matter to the traders will be the delta, or the rate of change. ISM is forecast to improve from 30 to 35 and ADP (NASDAQ:ADP) job losses are expected to be less than half of what they were last month.

The delta was mildly positive in Europe, with EU final PMI and UK Services PMI both coming in slightly better. That has helped both euro and cable to remain bid, with the former crossing the $1.1200 big figure ahead of the ECB presser tomorrow. But the Aussie, which has been the poster-child for this risk rally, was off the highs as it gave up the A$0.6900 level.

Overall, the tone in the market remains hopeful, as investors bet on global recovery, supported by ultra-easy monetary policy. For now, any positive change in the data should provide a further boost to risk assets. But the rally is starting to stall ahead of the 3,100-level for the S&P 500 and any disappointment in the data could trigger profit-taking as the day proceeds.

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