We saw yet another record high for US markets yesterday, but investors seemed to lack the conviction to drive the S&P through the 1,900 level,
and this may have been due to a higher than expected rise in weekly jobless claims to 326k, and a wider than expected trade deficit for February which suggested that US Q1 GDP growth estimates could well come in nearer to 1% than 2%.
As a result US markets did drift lower into the close before pulling back from their lowest levels
and as such this is likely to see a slightly stronger European open this morning as investors digested the latest talking points to come out from yesterday’s ECB rate meeting, and look to price in a positive US payrolls number.
The ECB once again left monetary policy unchanged yesterday
, but there was an admission that the subject of QE was discussed along with a range of other tools within the central banks mandate, which was a slight shift in tone, and this has helped drive the euro lower, but in general the prospect of QE still seems some way away.
In any case there is no guarantee that QE will have the effect economists think it will given current low levels of inflation in the US
, and the slow decline of those pressures here in the UK, who have both done large scale stimulus programs.
Even in Japan, which has struggled with deflation for years until their recent stimulus program, prices are still not going up that quickly.
In general you get the feeling that the ECB could be playing for time in the hope a recovering US economy and the Fed will do its work for them,
with a stronger US dollar driving the euro back down.
Yesterday’s new record highs in the US still seem to reinforce investors belief that the recent slowdown in the US economy has been primarily due to the unseasonably cold weather
that the country has been experiencing since the end of last year, however the data so far certainly doesn’t appear to support a particularly robust rebound.
This isn’t altogether surprising given that the March weather has remained unseasonably cold despite fewer snowstorms,
and despite market optimism of a strong rebound in jobs growth this cold could well hinder a strong bounce back in the labour market.
As an aperitif on Wednesday the ADP employment report came in slightly below expectations at 191k new jobs in March,
while yesterday the employment component for the services ISM indicator also suggested a rebound in March, despite a weaker than expected headline reading.
This has raised expectations of a much higher above consensus number from the general one of a gain of 200k new jobs
, with some estimates as high as 275k, but we should also look for revisions to the previous two months as well, which came in at 129k in January and 175k in February.
The 275k estimate does seem wildly 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 at the next Fed meeting this month
, after Janet Yellen’s dovish comments earlier this week.
All a poor number will do is merely serve to reinforce the Fed’s narrative about risks to the recovery,
which means whatever the number the momentum is likely to remain with the bulls, whatever your views about the sustainability of current valuations.
The unemployment rate is expected to decline from 6.7 to 6.6%
, still just above the old and now discarded 6.5% FOMC threshold, which means that investors are likely to pay much less attention to any fall in the headline rate. We should also look for a rise in the participation rate which now sits just above its 35 year low of 62.8% at 63%.
While a strong jobs number or otherwise isn’t likely to shift the dial on stocks that much
, it could well move the US dollar and US bond yields, with central bankers in Europe hoping that a rise in US yields helps push the US dollar higher against the euro
. A move above 2.82% on the 10 year could well signal further gains towards 2.9, and in the process push USDJPY up towards 105.50.
– dips in the euro are currently being contained by the 50 day MA with last weeks low at 1.3705 the key support. Only below 1.3700 argues for a move towards 1.3640 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 1.4000 level remains a key psychological barrier to a move towards 1.4200.
– the pound continues to trade in broad range with solid support between 1.6400 and 1.6500, and resistance near 1.6700. Support in the interim comes in around the 1.6570/80 area.
We have trend line resistance from the 1.6820 highs at 1.6740.
– the downside remains intact with the next support around the March low at 0.8205. We could get a pullback towards 0.8340 in the interim though if we can’t push through the 0.8300 level. As such the bearish engulfing candle seen last week remains intact. The resistance at the 200 day MA at 0.8420 remains a key obstacle to further gains.
– the US dollar continue to push on beyond 103.00 with the prospect of a retest of the previous highs of 105.50 a distinct possibility. Having pushed beyond the 103.70 level and March high, which is 61.8% retracement of the 105.50/100.75 down move, the 105.50 level remains a key barrier to further gains.
To reopen a move lower we need to see a move back 102.70.
CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.