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Stock market perfection - US jobs data is good but not too good

Friday’s US jobs data means there is every chance that the US S&P 500 index will finally make a successful assault on the 2134 resistance this week. The Australian market has followed suit with a strong opening.

The rebound in US jobs growth leaves the trend growth over the past 4 months at a solid 157 thousand. This looks much more sensible than May’s very weak data given solid growth in US consumer spending; housing and the services sector.

 However, markets have not moved the dial on expectations of a Fed rate hike to any material extent. The consensus view is that the Fed will be kept cautious by ongoing global weakness and the Brexit blow to confidence likely to begin showing up in economic data over the next couple of months.  Expectations of moderate economic growth and ongoing low interest rates are a bullish combination for stock markets.

China’s inflation data helped consolidate a bullish, steady as it goes for stock markets this morning.  Wholesale, PPI deflation is moderating under the influence of a strong property market and rising commodity prices.

Market confidence in the lower for longer interest rate scenario is reflected in the fact that the US Dollar remains relatively weak. At the same time bonds and gold are holding ground at last week’s high levels.

However, despite this morning’s confidence, any stock market rally over coming days may be relatively limited. Equity valuations are high limiting the scope for a rally. The improved US labour market also creates the risk that the market is too confident about the Fed not hiking rates again over the next 12 months.  In these circumstances, it would not surprise to see the US stock market make only a limited breach of the previous highs if resistance is broken this week. 

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