Even though we saw a strong rally on Friday after the US September payrolls numbers, the fact remains equity markets still finished lower for the second week in succession, with the German DAX posting its worst quarter since Q2 2012
as concerns about slowing growth and falling prices hit valuations across the board in Europe.
Friday’s US payrolls numbers was a rare ray of sunshine in a week that didn’t bring an awful lot of good chee
r and even here the better than expected payrolls numbers do have a cloud, in the context of fears about the timing of a potential Federal Reserve rate hike.
These concerns do seem overdone
given the weak wages number, but nonetheless they do shift the markets focus back towards the Fed and this weeks scheduled release of the FOMC minutes.
A figure of 248k for September, plus an upward revision to the July and August numbers meant an average 223k new jobs added for Q3, slightly down from the 267k average in Q2, but still well above the 200k level which suggests that the US labour market is ticking along nicely.
Unemployment also fell to 5.9%,
however the participation rate also fell to 62.7%, another 35 year low, while average earnings slipped back to 2%, diminishing concerns about inflationary pressures in wages.
US markets are now set to walk a tightrope over the next few weeks
as investors weigh up the strength of the recovery in the US against a backdrop of a potential rise in US rates.
The key question will be whether the strength of the recovery is enough to mitigate the risks of rise in US rates in the first part of next year
, or whether we start to see a plateauing of valuations as markets start to factor in the effects of events in Europe and China on US companies export expectations.
These expectations will start to get some extra colour over the next few weeks as earnings season gets under way with the release of Alcoa’s latest numbers.
Also in focus this week we have the latest factory orders and industrial production data from Germany
, which despite concerns about a slowdown in its economy, continues to broadly outperform the rest of Europe, while the recent 10% fall in the euro is expected to help considerably as it looks to make its exports cheaper.
August factory orders are expected to decline 2.5%
as Russia sanctions start to bite and the slowdown in Europe starts to impact demand across the board. We also have the latest construction PMI for Germany and retail PMI’s for September from Germany, France and Italy which are expected to remain in contraction territory.
We also have the latest Chinese HSBC services PMI data
with concerns about a slowdown in China helping pull the oil price to its lowest levels in nearly two years, and a 12% drop in the last three months.
On Thursday we have the latest Bank of England rate decision
and there aren’t expected to be any surprises here despite two dissenters at the last rate meeting. If anything the economic data has started to slip back so it would be a major surprise if we saw any change in voting patterns towards the hawkish side this side of Christmas.
– more technical damage on the euro last week as we closed lower for the 12th week in succession, another record. The scale of the declines suggests we could see 1.2400 at the very least and even move as low as the 1.2040 lows seen in 2012. For now we have resistance at 1.2570, with the much larger resistance level sitting up at the 1.2785 level.
– a significant amount of technical damage was done to the pound last week after it closed below its 200 week MA and its 50% retracement level of the 1.4815/1.7195 up move at 1.6010. This suggests that we could see further losses towards 1.5720 at the very least. For now there should be some support at 1.5850 , the November lows last year. We need a move back through 1.6020 to stabilise.
– the 0.7875 level continues to cap the topside for now, with a break targeting 0.7930, but the bias remains for a lower euro while below here. The support remains on the downside at 2012 lows at 0.7754 and last week’s lows at 0.7765. While we remain below 0.7875 the bias remains for euro weakness towards levels last seen in October 2008 at 0.7690.
– while 110.00 caps the key reversal day on Wednesday remains valid and as such we could well see further weakness on a break below 108.00, and argue for a test of the 106.20 are in the coming days.
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