Friday’s US payrolls report may well have surprised the markets by how poor it was, but looking at where equity markets finished you would never have known, and today’s start in Europe looks set to be of the positive variety
as markets look towards a week of earnings and more economic data from both sides of the Atlantic.
While investors were left scratching their heads at why Friday’s number was so poor the general consensus appears to be that the number could be a bit of an outlier,
which could well be revised higher next month, while some analysts have suggested that the weather could well have played a part. This reasoning does sound a little suspect when all other December employment numbers, including ADP have all been broadly positive.
In any case if the weak jobs number was weather related
then anyone looking for a strong rebound in the January number could also be disappointed
given the winter storm disruption seen so far this month. It could well be March, when we see the February numbers, before we see the jobs numbers settle down.
Much has been made of the sharp fall in the unemployment rate to 6.7%
with some suggesting that it keeps the Fed on course to continue tapering at this month’s January meeting, regardless of the weakness of Friday’s payrolls number, but that belief conveniently ignores the similar drop in the labour participation rate to a 35 year low, at 62.8%
. The fact that so many in the work force have stopped looking for work can’t be seen as a positive thing, surely.
It also ignores that fact that the Fed has a dual mandate on inflation
, which continues to remain tepid, which could also give them pause at their next meeting, given how worries about how prices are falling are being voiced on the FOMC. This week’s CPI inflation numbers, due on Thursday, could well be instructive as far as that debate is concerned.
The belief that Friday’s numbers could see a pause in tapering until March do appear to be reflected in US bond markets, with the biggest one day fall in yields in the 10 year note since September last year
, closing over 11 basis points down on the day at 2.8579%.
Friday’s disappointing number would now appear to place much greater focus on US earnings this week with the main focus on US banks
starting with JP Morgan tomorrow and followed by Bank of America Merrill Lynch, Wells Fargo and Citigroup later in the week, all reporting their most recent quarterly numbers.
Given the Fed has finally embarked on its tapering program, will an improving economy be reflected in US banks balance sheets
and will their numbers show higher lending into an improving US economy?
The economic data calendar is also set to be important
with the health of the US consumer likely to be of particular interest in light of the concerns raised by US retailers
at the end of last year about the retail outlook. US retail sales for December are due out tomorrow, with the Christmas period always a key period for any retailer, and we shall discover as to whether those fears about lower consumer spending turned out to be justified.
– we continue to find solid support just above the 100 day MA at 1.3550 as Friday’s rally brought us back towards the 1.3700 area. The key resistance remains at 1.3885, which is long term trend line resistance from the all-time highs at 1.6040, a break of which could well see a move towards 1.4000.
Only a move below 1.3550 would undermine the current uptrend and argue for a move towards 1.3475.
– Friday’s rally took us to the 1.6520 level and within sight of this month’s high at 1.6605. It will look to continue to remain well supported pushing while above the key support at 1.6320 from the 1.4815 lows in July last year. Only a break below 1.6250 retargets a move back towards 1.6110.
– while we’ve seen a bit of a pullback since last week’s 11 month lows at 0.8232, the risk remains for a move towards the 0.8160/70 area which is a 61.8% retracement of the entire up move from the 2012 lows at 0.7755 to the highs last year at 0.8815. Only a move above 0.8330 delays the prospects of a weaker euro.
– the concern we had about a weaker US dollar came to pass on Friday dropping below Ichimoku cloud support on the four hour chart at 104.60 and raising the prospect of a move towards 103.70 initially. Having failed at the 105.50 area the risk now is off a bigger pullback towards the 102 area in the event we move below the 103.70 and then 103.20 area.
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