Strong Employment Data Lifts Sentiment
Stock markets closed strongly into the end of the week, as encouraging employment data lifted sentiment and helped give confirmation that the global economic recovery is proceeding strongly. Most of the market volatility in the early parts of the week was seen stalling, as investors waited on the sidelines for the key data that was released after Wednesday. The first important event was the ADP employment report, which measures the number of private jobs added for the month. This number came in much higher than analyst expectations, at 188,000 jobs for June. Markets were positioned for an increase of 135,000 jobs, so this release brought some support to global stock markets.
There is a high correlation between the ADP employment report and the monthly Non Farm Payrolls report, which is much more important in terms of generating volatility. For this reason, investors will usually use the ADP report as predictive precursor for what to expect with the Non Farm Payrolls results, which are always released on the following Friday. Since the ADP numbers were particularly strong, it was not entirely surprising to see improvements in the NFP data, which was much higher than the market estimates of 165,000 jobs. Looking ahead to next week, it is likely that we will see some hangover of these positive moves, at least in the early parts of the week. Asian markets should be supported on Monday and this should carry through into the first few sessions. Volatility should slow as well, as some of the dust settles from the activity that was seen last week.
The S&P 500 made a strong bounce off of support at 1550, on its way to new short term highs in the 1630 region. We will likely see a general upside drift in stock prices for the index next week, as there is little in the way of meaningful resistance until 1680. Looking forward, the bias remains moderately bullish as long as support at 1550 holds. If prices drop below here, expect losses to accelerate as we are still holding at elevated ranges looking at the long term charts.
The FTSE 100 is quickly becoming one of the most volatle stock indices, after bouncing violently off of support levels in the 5980 region. For longer term traders, this is the key level to watch on the downside and the overall bias remains bullish as long as we hold above here. For resistance, the area to watch is seen at 6415, and we have seen a spike (but no weekly close) above this area. A weekly close above 6415 will accelerate gains.
The DAX is proceeding higher in a very orderly fashion, creating a well defined bull trend channel. Bias is positive until this channel breaks, first level of support for long positions comes in at 7710, followed by 7650.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.