Despite a strong finish at the end of last week for European markets in the wake of a mediocre US employment report, this week in Europe looks set for a lower start this morning after a late afternoon sell-off in the US on Friday
, which saw the main US benchmarks post some very sharp falls, with the biggest decline coming on the Nasdaq.
Having made a new record high after Friday’s March jobs numbers the S&P500 soon turned tail after failing to push above 1,900
as the high expectations for the March numbers gave way to a sharp reality check. It would appear that a number of investors had been pricing in the prospect of a jobs number in excess of 200k as the week had progressed, ignoring the possibility that maybe the type of jobs rebound they had been hoping for might well be a bit premature.
The fact is that large parts of the US Eastern seaboard have continued to endure unseasonably cold temperatures throughout March
, and a lot of the economic data seen so far continues to bear this out. That’s not to say that the jobs report was a bad one, it wasn’t. It just fell short of elevated expectations and end of week positioning.
The improvement in the participation rate
as well as the upward adjustments to the January and February numbers were both welcome, but also undermine the weather related argument somewhat with respect to the jobs slowdown, as they suggest that despite the cold weather, economic activity proved to be slightly better than first thought.
As well as a slide in stocks we also saw a slide in US bond yields as markets priced out the prospects of earlier than anticipated Fed rate hikes
, but the prospect of these had already been played down at the beginning of last week by Fed chief Janet Yellen, as she sought to clarify remarks made at her first FOMC post meeting press conference.
As such this week’s FOMC minutes could well add some colour
to the rates picture particularly in light of some of the more contradictory commentary coming from FOMC members with respect to rate expectations over the next 12-18 months. The minutes could also add some detail as to the new measures that the Fed is looking at
when undergoing its economic assessment of the US economy.
In the wake of Friday’s late sell off and with US earnings season also set to get under way this week
it will be more important than ever that companies are able to live up to the guidance expectations
that markets are currently pricing in for them, otherwise Fridays sell off could soon give way to a much deeper and sharper correction, in the coming days.
– Friday’s dip in the euro found support near the 100 day MA and trend line support from the 1.2760 lows from July last year. A move below 1.3640 could well argue for a move towards the February lows at 1.3475 while below 1.3820. We need a break through the 1.3850 level to stabilise and suggest a retest of the recent highs at 1.3970.
– the pound continues to trade in broad range with solid support between 1.6400 and 1.6500, and resistance near 1.6700. Trend line support in the interim comes in around the 1.6530 from the November lows at 1.5855. We have trend line resistance from the 1.6820 highs at 1.6730.
– the downward pressure on the euro continues to find support just above the March lows at 0.8205, with support at 0.8245/50. We could get a pullback towards 0.8340 in the interim if we push through the 0.8300 level, but that is capping for now. The resistance at the 200 day MA at 0.8420 remains a key obstacle to further gains.
– a peak last week of 104.15 has seen the US dollar drop back sharply posting a bearish reversal daily candle. Support remains at last week’s low at the 102.70/80 level, and only a break through here argues for a revisit of the 101.20 level, and March lows. The 105.50 level remains a key barrier to further gains.
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