The hits just keep on coming as US markets continued their relentless grind higher yesterday
after yesterday’s US jobs numbers missed expectations, and in the process sent the S&P500 to new record highs for the third day in succession.
As a result we’re back in the bad news is good news business once again
thanks to the recent disruption caused by the recent US political logjam, and this means that once again we can expect more froth to flow through into stock markets.
Despite all this euphoria from US investor’s, European stock markets appear to be taking a more measured approach with a lower open this morning
, as a result of a sharp sell-off in Asian markets.
It hasn’t been immediately clear what triggered the Asia sell-off
apart from chatter about bad debts in the Chinese shadow banking sector.
A story that Chinese banks have tripled debt write-offs in the first half of this year
appears to have prompted some profit taking with Asia markets near multi week highs.
Given concerns earlier this year about the Chinese shadow banking sector
it would appear that the acknowledgement that there is a problem and Chinese authorities are starting to deal with it has seen some investors take some money off the table in case there are a lot more provisions to come.
As for the US jobs report, the key takeaway
appears to be what it tells us about the US jobs market even before the government shutdown.
Despite the upward August revision the fact that the numbers are on a downward slope
suggests that the all is not well with the US jobs market, and that’s before you even factor in the October numbers which are likely to be unreliable, if not dreadful.
This is likely to mean only one thing and with respect to a tapering program and means that it is now much less likely that the Fed will even contemplate tapering any time
before the end of Q1 next year.
Of course all this talk of a delay to tapering is great news for emerging markets
which have taken a battering in recent months, after the US dollar rallied sharply. Now it is sinking back money appears to be flowing back into these currencies, as the US dollar sinks back.
One person not laughing is ECB President Mario Draghi, who will be fending off squeals of protest from European politicians that the euro is too high.
Earlier this year we had French President Hollande complaining that the euro was too high,
and that was when the single currency was trading around 1.3200. Yesterday it was France’s industry minister Arnaud Montebourg
urging the ECB to take steps to lower the rate, saying it needed to be more Italian or French.
While Mr Draghi’s room for manoeuvre on rates is likely to be limited
due to soaring German house prices after a warning from the Bundesbank earlier this week, the ECB does have the opportunity today to start the ball rolling on one of the running sores in Europe, namely the regions banks and steps towards supervising the top 130 systemically important institutions.
Today it will outline the first steps of how the assessment will work initially, who will carry out the checks of all its assets and liabilities, which will then be followed by the (AQR) Asset Quality Review
, which is expected to be completed by October 2014.
In the UK
we will be getting the latest minutes from the most recent Bank of England meeting
, ahead of this week’s Q3 GDP numbers which are expected to show that the economy expanded in the region of 0.8%. Yesterday’s public finances showed increased revenues from stamp duty to the tune of £1bn for the first six months of this year.
The minutes aren’t expected to be particularly illuminating
given the recent actions by both the Bank and the IMF in upgrading their growth forecasts for the UK economy, but they might shed some light
on whether there is any concern about the nature of the current forward guidance and the unemployment rate
, given recent falls, and the markets scepticism about the banks rates promise.
In comments yesterday deputy governor Charles Bean
suggested that the bank might consider updating or “bolstering” its forward guidance
, particularly, if as expected the unemployment rate continues to fall faster than anticipated, towards the 7% “staging post”
– yesterday’s break above the 1.3710 level now brings trend line resistance at 1.3980 from the 1.6040 highs in 2008 into view.
Any dips look likely to find support at the 1.3700 level, with a move below targeting the lows this week at 1.3650. The key support area continues to remain at the 1.3450/60 area, with only a break below the 1.3450/60 area which has acted as support this month would signal a move towards the 1.3320/30 level.
– yesterday’s rebound brings us back closer to the key resistance area at the 1.6320 trend line from the 2009 highs at 1.7045. This remains the key level with respect to further sterling gains, but the failure to overcome the 1.6260 area is a minor concern and could provoke a pullback.
– the 0.8500 area continues to act as a bit of a barrier with the 200 day MA at 0.8524 behind the highs this month. While below this key barrier the bias remains for a move back towards the 0.8420 area in the short term. A move back below the 0.8420 area retargets the 0.8280 level.
– the US dollar continues to whip either side of the range 97.50/98.50 as it continues to trade between 99.65 trend line resistance from the May highs at 103.75 and the 200 day MA at 97.15. A clear break below the 200 day MA and the lows this month could well trigger further US dollar losses towards the August lows at 95.80.
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