ASX 200 looks ominous ahead of NFP, gold looks confident

ISM services delivered a decent set of figures overall, which could sprinkle some doubt as to whether the Fed run with a 50bp cut this year. However, with separate employment data skewed to the downside and the Fed’s beige book showing further evidence of an economic slowdown, ISM services alone is not enough to discount a 50bp cut either.

Fed fund futures now imply an 85% chance of a 50bp cut in November, although some calling for such a move in September.

ISM services expanded at its fastest pace since March 2022 at 55.7, new orders increased to a three-month high of 53 and prices paid (a measure of inflation) rose increased to 57.3. The Employment component underwhelmed with a marginal expansion of 50.2, but it was not enough to rerail the entire report.

Comments from the ISM survey respondents were mixed, with some noting increased business activity, strong business overall amid concerns of higher prices and slower employment.  

Yet if we look elsewhere, employment data was skewed to the downside to likely seal at least 75bp of cuts hits year. Over 75k jobs were cut in August according to the Challenger report, over three times more than the 25k in July. ADP payrolls fell ~19% short of the 122k expected with the 99k jobs added in August. Jobless claims came in roughly as expected. Attention now shits to today’s nonfarm payroll report.

• Wall Street indices retreated for a third day, although bearish volatility is on the decline for the S&P 500 and Nasdaq 100
• Dow Jones futures had a high-to-low range of 1.4% but finished the day -0.5% lower
• Gold rose 0.9% and trades less than a day’s typical range from its record high
• Crude oil prices declined for a fourth day, although only marginally lower at -0.1%
• Nikkei futures were -1% lower overnight and looks at the Nasdaq and yen for direction
• The US dollar was the weakest FX major, EUR/USD rose for a second day and closed above 1.11
• USD/JPY saw a false break of 143.43 on Thursday, but is now hugging that swing low as it waits for the jobs figures

ASX 200 futures (SPI 200) technical analysis:

ASX futures were effectively flat on Thursday, and we could be in for a quiet session today with the Nonfarms report looming. But if I had to predict the NFP report purely from the price action of the ASX 200 futures chart, I’d guess we’re in for a weak report.

The 2-day advance from this week’s lows pales in comparison to Tuesday’s bearish marabuzo day. Yesterday’s doji stalled below 8,000 to show a clear hesitancy to make much of an effort, and price action on the 1-hour chart appears to be corrective in nature.

The bias is to fade into moves towards 8,000 in anticipation of another drop lower. The lows around 7900 are the initial support area for bears to target, a break beneath which brings the 7840 region into focus near the weekly S4 pivot and historical weekly VPOC (volume point of control).

Gold technical analysis

Earlier this week I outlined my bias for gold futures prices to hold above a support cluster around $2500, and so far that has worked out well. However, I also shared my doubts that it would “simply break to a new record high”. But now less than a day’s trade away from it, new highs seem more likely or not. But as always, the question is whether it can hold on to those highs.

I wouldn’t be too surprised to see it sneak in a new record high ahead of the NFP report. But for the move to be sustained, we may need to see a steady deterioration in today’s employment figures. Because if they fall too hard t could send gold prices lower like it did after the weak ISM manufacturing report, presumably because investors reduced gold exposure to nurse equity losses.

Wednesday’s bullish pinbar was followed by bullish range expansion on Thursday. A decent trend is apparent on the 1-hour chart. The bias is to seek dips on the assumption of a record high before the US employment report, after which is really is down to the numbers as to high gold can move (unless of course it retreats).

Events in focus (AEDT):

• 09:30 – JP household spending
• 11:30 – AU home loans
• 15:00 – JP coincident index
• 16:00 – DE industrial production, trade balance
• 17:00 – ECB Elderson speaks
• 19:00 – EU GDP, employment change
• 22:30 – US nonfarm payrolls, unemployment, average earnings, hours worked
• 22:30 – CA employment change, unemployment
• 22:45 – FOMC Willians speaks
• 00:00 – CA Ivey PMI
• 01:00 – Fed Waller speaks

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge