We saw yet another record finish for the S&P500 yesterday
after weekly jobless claims dropped from the previous week to a three month low, and the ECB disappointed the markets yet again by leaving monetary policy unchanged
The actions of the ECB shouldn’t really have been too much of a surprise given recent data,
but markets probably read more than was intended into Mario Draghi’s remarks on Monday. Mr Draghi’s comments that the euro was an “island of stability”
at his press conference yesterday certainly raised a few eyebrows, and probably a few wry smiles but nonetheless give the perception that any further easing remains someway off.
As far as yesterday’s new record highs on US markets are concerned, once again the overall narrative has been maintained with respect to latching onto the positive economic numbers and disregarding anything that deviates away from the overall belief that the weather is solely responsible for any weakness in the economic data. Yesterday’s miss on US factory orders data for January and downward December revision was put to one side.
Comments by renowned policy hawk and FOMC voting member Charles Plosser about the “Unintended consequences” of QE
would seem to suggest that short of an absolute shocker of a payrolls report, we can expect to see another taper in just under a fortnight’s time.
The focus remains on the US economy again today and the latest US employment report
, for February.
This week’s Fed Beige Book for February acknowledged the effect that the weather had been having on the US economy, with New York and Philadelphia most notably affected, but it also said that eight of the Fed regions reported that economic conditions continued to improve, slightly down from the nine regions in the previous assessment.
We’ve seen US investors continue to put their faith in the belief that the recent slow down in the US economy has been primarily due to the unseasonably cold weather
the country has been experiencing since the end of last year. While there may be some truth in that belief some of the weakness we’ve seen has pre-dated the start of the poor weather and its impact on the US economy.
We saw on Wednesday when the ADP revised their numbers for previous months that jobs growth was actually 138k lower than previously forecast, over the last four months, while US retail sales since October have also been on a slow downward path.
Maybe the US government shutdown in October did more damage than previously thought?
It’s difficult to assess but today’s employment report could well be a sobering wake up call for those in the markets who believe that the current slowdown is purely weather related, or we could see the narrative continue while keeping one eye back on events in the Crimea.
Expectations for today’s number are for a gain of 150k new jobs, but we should also look for revisions to the previous two months as well
, which came in at 76k in December and 113k in January.
150k does seem a little optimistic
given the lack of improvement seen in the weather in recent weeks, though a poor number is unlikely to dampen expectations about a further taper
later this month unless we get a huge miss, of say below 75k. Any number below that could well give the Fed pause and probably split the committee.
The unemployment rate is expected to remain at 6.6%
, just above the important 6.5% threshold set by the FOMC. We should also look for a rise in the participation rate which last month rose from a 35 year low at 62.8% to improve to 63%
Also due out at the same time are the latest Jan Trade Balance numbers
with a poor number here likely to prompt further downgrades to US Q1 GDP estimates
. Expectations are for the deficit to widen to -$39.1bn from -$38.7bn.
– yesterday’s break above trend line resistance at 1.3835 from the 2008 highs shifts the focus towards a move towards 1.4000. Only a move back below 1.3770 would delay the prospects for this move and suggest a move back towards last weeks low at 1.3640.
– the key resistance remains near the highs last month at 1.6820, and as such the pound remains within its recent range between the recent lows just above 1.6600 and 1.6820. We need a break either way to determine the next move here. Only a close above 1.7000 could have huge significance in the coming weeks for the future direction of the pound.
– yesterdays break above the 0.8270/80 area suggest a move back towards the 0.8320 area which is trend line resistance from the highs last October. A drop below 0.8160 targets a move towards the 2010 lows and 0.8065, while a move above 0.8280 targets 0.8320.
– yesterday’s move above 103.00 suggests the possibility of a move back towards 103.80, and then on to 105.50. A move back below 102.80 is needed to suggest that this is a false break and a retest of the recent lows at 101.30. Only a break below the 100.20 level and 200 day MA could well see further losses towards 98.30.
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