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UK stock market commentary (October 05, 2012): Big day for market with non-farm payroll the focus

A bout of risk appetite has run through the markets in the past 24 hours in particular in terms of sentiment towards the single currency. The move by EUR/USD back above 1.3000 is an indication that traders are readying themselves for a Spanish bailout at some point, it’s just a matter of time.  This is particularly the case when their bond auction yesterday was not a huge success.

But the focus today is not on Europe for once, rather it’s on the world’s biggest economy as today is non-farm payrolls day. Earlier this week we saw the ADP private payroll figure come in much higher than expected and this has helped to boost expectations for today’s data, however we saw exactly the same thing last month with a much better ADP number only for the NFP to come in much worse than expected. This threw a little spanner in the works for the bulls as the Dow was stopped in its tracks somewhat, but since then it has brushed the data aside and the index is pushing its 2012 highs.

So has the Dow gone too far up to now?  Our clients certainly seem to think so as they continue to oppose the upward trend at these highs, selling into each rally and clearly hoping for a pull back. The number today is expected to come in at around 115k and there are quite a few bullish predictions out there expecting a figure of more around 150k. This doesn’t seem so optimistic when you consider that the initial jobless numbers have been improving and at some point that ADP figure has to have an influence on the NFP.

As mentioned the Dow continues to march higher and yesterday it added a further 80 points to 13,575 following a better than estimated data on factory orders and jobless claims numbers. It’s also possible that signs of coordination in monetary easing by world’ central bankers might just convince investors a slowdown can be averted. So for European indices the knock on effect is that they are mostly in the black this morning.  At the time of writing the FTSE is at 5840, up just a handful of points but we might see little action ahead of 1.30 London time today.

The ECB President Mario Draghi reiterated his pledge to buy government bonds should member countries get in trouble thus shifting the market sentiment to a risk-on day. Additionally, the minutes of the latest Federal Reserve meeting indicated the US rate is seen to stay low until at least mid 2015. So, amid no change for the key interest rate in Europe, left at 0.75% the shared currency gained 111 pips to 1.3017 and this morning the single currency is just giving a little back but finding support at 1.3000.

Gold increased by as much as 0.3 percent touching a high of $1795.3 yesterday and closing at $1790.1, the highest intraday level since November last year. It was on its fourth consecutive day of gains yesterday as stimulus measures continue to make the precious metal an attractive hedge against inflation. The main factors keeping gold buoyant at the moment are the ECB's decision to keep interest rates unchanged yesterday and its statement that it was prepared to buy the bonds of debt-laden nations. Japan has also boosted its vaults with gold as a store of value which held the bulls cause. It's approaching the $1800 dollar level which has not been hit since November last year and it could well be an exciting day for the yellow brick as it edges higher.

The WTI crude prices rallied sharply yesterday, effectively recouping the losses posted the day before largely on the back of a border conflict between Turkey and Syria. Furthermore, a fire reported at one of Exxon Mobile’s refinery exacerbated the rise which finished $3.70 up at $91.71 a barrel. Today, all eyes will be on the US employment report which could offer a few extra clues on motorists’ spare income and thus future oil demand.