Fundawrap: Fed, geopolitics and nonfarm payrolls spark up market jitters

From a fundamental take on today's markets, investors have been cautious ahead of Friday's nonfarm payrolls while keeping an ear to the ground with some geopolitical headlines circulating relating to Washington's relationship with Bejing and Iran risk simmers away in the background. Brexit is also back on the trader's watch with a recent article in the Telegraph indicating that the window is open for Remainers to thwart Brexit. 

As far as markets are placed, gold was up $7.39, up 0.57%, WTI crude up 55-cents to $68.48, the S&P 500 was down -5.94 points to 2629.73, the Dow reversed a 400 point decline to close near unchanged on the day and US 10-year yields down -2 bps 2.945%%. The US dollar took a knock right off the bat after yesterday's FOMC statement that failed to indicate that a June hike was on the cards and today, the dollar was trading with a bearish bias with investors harbouring less bullish outlook for the US economy ahead. As for the currencies, the Yen and Kiwi were the strongest while the pound and greenback (commodity complex bid) were the weakest. 

Brexit:

There has been a lack of progress on the Brexit front in recent weeks, with only low-key positive comments. PM May's government have been unable to present a unified approach to both the customs union and the Irish border and is causing an air of caution in the pound as markets can't get optimistic on a clean Brexit resolve. 

"Britain will be unable to leave the customs union before 2023, ministers have been told, leading to fears that the delay will be exploited by Remainers to thwart Brexit," -Telegraph.

Washington/China:

Trump praised China's Xi as the U.S. team arrives for trade talks and reiterated yesterday that he has a "good (great)" relationship with Xi ahead of trade talks; and said that the US delegation will be "trying to negotiate a level playing field".

Trump said a “great financial team” was trying to ensure a “level playing field” on trade and added, “I look forward to being with President Xi in the not too distant future. We will always have a good (great) relationship!

However, there are concerns with China about its latest militarization of the South China Sea and there were other reports that a laser from a Chinese base was aimed at U.S. military pilots in Africa’s skies, according to the Pentagon. According to Pentagon officials, Chinese military personnel are targeting American flight crews in the skies over the east African nation of Djibouti using a high-powered laser in what amounts to a new show of Chinese harassment of the U.S. military at a time of heightened tensions between the nations. White House response? - "There will be near-term and long-term consequences"...

All in all, however, it sounds like the first day of talks with China are "pretty positive", with a White House economist stating that the US has discreetly given China a list of asks and that they will ask China to lower tariff rates to match the US.

• "Tough part in talks is ensuring China keeps promises".
• "Trump wants to see free trade deal with Japan".
• "He's optimistic on tentative NAFTA deal before June".

US data: 

• US Markit Composite Final PMI April: 54.6 (prev 54.8)
• US Markit Services PMI Final April: 54.9 (prev 54.4)
• US ISM Non-Maf Composite April: 56.8 (est 58.0 prev 58.8)
• US Factory Orders March M/M: 1.6% (est 1.4% prev 1.6%)
• US Factory Orders Ex Trans March M/M: 0.3% (prev R 0.2%)
• US Durable Goods Orders March Final: 2.6% (prev 2.6%)
• US Durables Ex Transportation March Final: 0.1% (prev 0.0%)
• US Capital Goods Orders Non-Def March Final: -0.4% (prev -0.1%)
• US Capital Goods Ship Non-Def Ex Air March Final: -0.8% (prev -0.7%)
• US Atlanta Fed GDPNow Q2: 4.0% (prev 4.1%)

Nonfarm payrolls previews:

Westpac:

• NFP print 180k, unemployment rate 4.0%
• Overall momentum in payrolls is still very strong
• Come April, another robust gain is anticipated circa 180k
• There is also a risk of upward revisions to the prior number
• As we move through 2018, the pace of employment growth will slow but still likely exceed 100k, seeing the unemployment rate move lower

CBA:

• US April payrolls to expand by 200,000 after the small increase in March
• The US participation rate and the number of "part-time work because of slack" have stopped decreasing
• These trends suggest the labour market is tight and further falls in the unemployment rate should lead to further increases in wage costs
• Expect the unemployment rate to return to 4.0% and average earnings to expand by 0.2% (2.7% pa)
• Small reduction in unemployment rate to 4.0% expected and well below full employment level of 4.5 to 5.0%
• Slight upward trend in hourly earnings expected as labour market continue to tighten