Everyone is talking about the US unemployment rate which dropped to 7.8% last month, but the equity markets took a more sober view and the candlestick from Friday’s trade on the S&P 500 is on the ordinary side of ordinary.
Looking at the data, non-farm payrolls wasn’t that flash rising just 114,000 in line with expectations but the massive rise in employment as measured by the “household survey” which was up 873,000 was what drove the big fall in unemployment. Given this is the last non-farms before the US Presidential election conspiracy theories abounded with even former GE CEO Jack Welch saying that he thought the books were cooked. Clearly this is ridiculous as unemployment data all over the world has a shocking innate volatility and standard deviation for all of the focus markets put on it. This is one of the reason I stopped trading into employment numbers 20 years or more ago.
At the close of play the S&P had given back its gains on the day in what would have been disappointing trade for the bulls. But then this week, after the holiday tonight, is the start of Q3 earnings. Alcoa opens the batting tomorrow night and then it will be a busy few weeks and there are those in the US who believe that there is a very strong divergence between current stock prices and the ability of the companies to deliver on valuations. Facebook is a good example of what happens when markets reappraise earnings potential and expectations. I’m not saying for a second that the sharemarket’s value is going to halve, if this bull market from March 2009 has taught us anything it is not to underestimate the persistence of the buying, and it is worth noting that the S&P 500 closed at its highest level since May 2008. One hell of a rally, but earnings remain important.
At the close of play the S&P 500 was flat, the Dow was up 0.2% and the NASDAQ fell 0.4%. In Europe the close came at the time the US markets were in a more ebillient mood before the afternoon sell-off and as such the FTSE clsoed up 0.74%, the DAX up 1.27% and the CAC up 1.64%. Madrid was up 1.89%. Over the weekend there is talk out of the Financial Times Deutscheland that the EU has developed a separate €20 billion budget for a centralised arrangement. Elsewhere, comments by ECB Board Member Joerg Asmussen that giving more time to Greece to repay would be illegal or illogical might just put Europe back in the headlines this week.
On FX markets, the USD strengthened to take back some ground from the euro and other crosses which had done better early. The EUR had made a high of 1.3070 and sits now at 1.3026 this morning. The Aussie was once again the big story – on Friday the AUD tried and tried to get through the previous days high at 1.0271 but found itself unable to and as I headed out for the afternoon it was clear that it was about to get hit. Early European trade knocked it back to 1.0240/50 before the heavy selling came in and drove it down to the bottom of the range at 1.0150 where it sits this morning. Chris has looked at the technical set-up from a trade point of view for the Aussie and on the crosses in Macro investor this week. And if you haven’t heard, form today, the trade portfolio ideas will be updated daily.
Also of import for the Aussie this week will be the start of earnings season given that it is the “risk” element of the market sentiment that has been responsible largely for holding the it up against the USD for a while now. Likewise the news that Golden Week retail sales in China are down 15% on last year underscores the enduring slowdown in China.
On commodity markets, crude continued its volatility dropping 2.04% to $89.88 Bbl. $86.83 remains the bottom of the range and crude might have a test in that direction soon. Gold pulled back to $1780 oz. after failing at $1800 for the moment but found support on an old trendline going back to August – a break of $1767 would signal a deeper move. On the Ags, soybeans were flat but corn and wheat fell 1.20% and 1.375 repsectively.
Lets have a look at some Meta4 charts from my AVATrade platform.
EUR/USD: The EUR did manage to rally day on day even though it gave up its highs so the uptrend based on JimmyR and the ADX remains intact. As you can see, there is old trendline resistance around 1.3115. Support on the day is strong in the 1.2945/50 region and medium around 1.2967 which was the level we identified Thursday euro needed to get through to kick on.
AUD/USD: After rejecting the previous days highs the AUD traded down to 1.0150ish on Friday night. A break below here opens the way to important support across multiple time frames at 0.9960/70. JimmyR and ADX are both suggesting that the AUD is in a downtrend:
Data: Its a holiday in the US tonight so markets won’t really know what to do for the week until tomorrow evening.
Here is a snapshot of where markets sat on Saturday morning from MT4 at AVATrade
Twitter: Greg McKenna . He is the Chief Investment Officer of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
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