Would the last person who still thinks the Fed is about to start cutting back on QE please turn out the lights? Today’s ADP private sector payrolls report came in well short of expectations confirming the US weakness seen in Monday’s below 50 manufacturing PMI number. These numbers suggests that last month’s strength was an aberration and indicates that the US economy is not as strong as some had thought.
One of QE3’s main jobs is to offset the contractionary effects of sequestration cutbacks on the fiscal side. Without a strong economy to support them, its hard to see the Fed slowing QE for some time yet. The European experience has shown that combining fiscal austerity with a high currency and tighter monetary policy is a recipe for depression, hence the move toward more of a growth stance on the continent.
European indices have been trading lower today despite better than expected service PMI readings for the UK and Spain. This suggests that as in Japan, where the Nikkei fell another 3% overnight but held 13,000, indices have become so overextended and due for a correction, that they are falling under their own weight. A correction doesn’t always need a big fundamental driver, just a lack of interest in keeping the trend gong.
So far US indices have only fallen a small amount relative to their overseas counterparts, but the clock appears to be running. Traders may be holding out hope that non-manufacturing PMI later today or nonfarm payolls Friday could salvage the situation, but traders need to be aware that markets could move off of these releases as traders adjust their tapering speculation, which could create opportunities across many markets.
Currency trading finds USD generally in retreat once again as traders continue to unwind the tapering speculation positioning that had sparked last month’s big greenback rally. JPY is gaining as if falls back under 100.00, along the GBP and CHF.
EUR is flat ahead of tomorrow’s ECB meeting when it could get very active as there has been a lot of speculation over whether or not it will cut interest rates again. The Bank of England meeting, like last week’s Bank of Canada meeting is likely to be a non-event with the old guard on its way out and Governor Carney ready to take over for July.
Commodities have been neutral to positive with copper leading the charge and precious metals captializing on USD weakness. Resource currencies have been mixed. CAD and NZD have been rebounding. AUD has remained weak after disappointing Australian GDP suggests that the RBA may need to cut interest rates further at some point.
There are still a lot of big developments to come both later today and through the rest of the week that could keep markets active and create opportunities for trading.
Significant economic announcements released overnight include:
US ADP private sector payrolls 135K vs street 165K vs previous 119K
Spain service PMI 47.3 vs street 45.3
Italy service PMI 46.5 vs street 47.5
France service PMI 44.3 as expected
Germany service PMI 49.7 vs street 49.8
UK service PMI 54.9 vs street 53.1
Eurozone GDP (1.1%) vs street (1.0%)
Australia GDP 2.5% vs street 2.7% vs previous 3.1%
China HSBC service PMI 51.2 vs previous 51.1
India service PMI previous 50.7
Economic reports due later this week include:
10:00 am EDT US ISM non-manu PMI street 53.5
10:00 am EDT US factory orders street 1.5%
2:00 pm EDT US Beige Book
12:00 pm BST Thu UK interest rate decision 0.50% no change expected
12:45 pm BST Thu ECB interest rate decision 0.50% no change expected.
8:30 am EDT Fri US nonfarm payrolls street 167K vs previous 165K
8:30 am EDT Fri US private payrolls street 178K
8:30 am EDT Fri US manufacturing payrolls street 3K
8:30 am EDT Fri US unemployment rate street 7.5%
8:30 am EDT Fri Canada employment change street 15K
8:30 am EDT Fri Canada full-time jobs previous 36K
8:30 am EDT Fri Canada part-time jobs previous (23K)
8:30 am EDT Fri Canada unemployment rate street 7.2%
North American Indices
US30 is testing 15,120 support where a breakdown would signal the start of a deeper correction where 15,000 or 14,800 could be tested. Initial resistance appears near 15,325.
SPX500 has found some support near 1,622 for the moment but remains in a downtrend with RSI suggesting downward momentum accelerating. Next support appears near 1,600 then 1580 with initial resistance near 1,635 then 1,660.
NDAQ100 is forming a descending triangle above 2,960 with its next potential support test near 2,920 then 2,900 on a breakdown with initial resistance near 3,000.
US SmallCap 2000 continues to drift in a 970 to 1,000 channel with RSI suggesting upward momentum slowing. Next downside support near 955 then 920.
Canada60 (Toronto60) continues to drift lower with 724 emerging as new resistance and next support in the 712 to 715 area.
Gold remains supported above $1,400 and in an uptrend but needs to clear $1.420 to complete an ascending triangle. If successful, next resistance appears near $1,445 then $1,460 with next support near $1,385.
Silver continues to attract support above $22.00. although RSI suggests upward momentum is building, it still needs to clear $22.80 to break a short term downtrend and $23.40 to confirm the start of a upswing.
Copper continues to rise toward a test of $3.40, where a breakout would signal the start of a new upleg on trend with next resistance near $3.55. RSI suggests upward momentum growing. Recent breakout point near $3.33 emerges as new support.
US crude is trading near $94.00 but needs to break $94.40 to break a downswing and clear the way for a run at $95.50 or $97.00 resistance. Downside support remains near $93.00 then $91.30.
UK crude is breaking out of a short-term downtrend but needs to clear $104.00, a Fibonacci level, to confirm a new upswing with next resistance near $106.00. Support rises toward $102.60.
Gasoline is back under accumulation, trading near $2.84 with net resistance near $2.92 and support near $2.80.
Natural Gas remains stuck just below $4.00 with next support near $3.85 and initial resistance near $4.08.
USDCAD continues to quietly roll over with resistance in place near $1.0360 followed by $1.0425 and support near $1.0300 then $1.0260 and $1.0200.
EURUSD is holding near the middle of a $1.3000 to $1.3200 trading channel but could get more active after tomorrow’s ECB meeting. Next resistance near $1.3400 with next support near $1.2940.
GBPUSD tested the high end of its $1.5200-$1.5400 trading range but doesn’t appear able to overcome headwinds yet, although RSI suggests momentum turning increasingly positive. Next resistance on a breakout appears near $1.5630.
USDCHF is bouncing around between $0.9400 and $0.9500 while RSI suggests momentum turning increasingly downward. Next support on a breakdown appears near $0.9360, followed by $0.9330 and $0.9240 on trend.
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