Market Focus to Shift to US Non Farm Payrolls
Stock markets began last week under some heavy selling pressure as investor confidence showed continued weakness and corporate earnings results failed to inspire much optimism. The bearish pressure abated toward the end of the week, however, as meetings between the government leadership bodies in both Germany and France showed that the Eurozone is committed to keeping the monetary union alive in its present form. Markets were greatly encouraged by this as it suggest that an exit from debt-ridden countries (such as Spain and Greece) is much less likely and this added some certainty to short term productivity forecasts.
We have seen stock markets (particularly in Europe) rebound from their yearly lows and most of this activity has been centered in financial stocks as investors seize on the opportunity to buy into weakness in some of the larger banking stocks. Looking ahead, however, market volatility could see some increases as investor focus is likely to shift back to key employment data from the US, with the monthly Non Farm Payrolls data scheduled for next week.
Market Activity Could Turn Volatile after Macro Data Releases
Next week, the main event will be the US NFP release that is scheduled for Friday. Market analysts are expecting that employers in the US slowed their hiring rates for the month of July and that the Unemployment rate is likely to stay above the historically high level of 8%. The consensus estimates for the NFP data is showing an expected rise of 100,000 jobs for the month. There is other significant data in addition to this that is scheduled for the week as well, with manufacturing productivity and consumer confidence levels both expected to show declines for the month.
If these forecasts wind up being true it will be a clear negative for stock markets in the US and will likely bring at least some of the recent buying in European equities to an end. The main question will be whether or not any negatives in the US data will keep investors from continuing to look for “on sale” prices in European markets, as this has clearly been the case for the last two weeks. Positive macro data, on the other hand, will likely propel the latest rallies even further given that we are still not far from the lows of the year.
The latest rally in the DAX is starting to look very encouraging with the index breaking to new highs above resistance previously seen at 6780. This is mostly encouraging because it is also showing a 61.8% Fibonacci break of the latest decline, which suggests that a full retracement is in line at some point later in the year. We are still caught in a symmetrical triangle on the weekly charts but this latest break does suggest that we will not see any major resistance until the psychological levels standing at 7000. Bias now is for buying on dips.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.