Dow, S&P 500 Post Record Highs But Close Flat
Spread betting markets traded in positive territory for most of this week, as macro data helped keep sentiment elevated and central bank meetings yielded encouraging outcomes. Specifically, the European Central Bank suggested that there is still room to make monetary policy more accommodative and this is an implicit signal showing that the ECB is prepared to inject monetary stimulus if debt contagion effects continue to weigh on growth.
This, of course, is a negative for the Euro as it means there will be a reduced incentive to hold onto the currency for an extended period of time. But at the same time it is positive for regional stock markets as this suggests that corporate earnings should be relatively supported in the coming quarters. Because of this, it would not be surprising to see limited declines in stock benchmarks in the DAX and FTSE 100 over the next few months.
On the data side, the main story of the week was the March Non Farm Payrolls report, which showed strengths in a number of different aspects. The headline figure showed a monthly increase of 192,000 jobs for March which was a slight improvement based on the initial estimates seen in the market. Additionally, the numbers for the previous month were revised higher and the unemployment rate held steady at 6.7%. On balance, these numbers are positive and this was helpful for stock markets. Both the Dow and the S&P 500 did manage to move to new record highs during the week but momentum was lacking and follow-through did not ultimately present itself. These benchmarks closed flat on the week, and this suggests lower price volatility next week.
The S&P 500 is still trading inside of a well defined uptrend but the slowing momentum at the end of last week suggests that we could be in for some degree of sideways trading next week. Overall, the bias remains bullish and we would need to see breaks of critical support levels in order to start arguing that a top is in place. First support comes in at 1850.
The FTSE 100 is quickly becoming one of the most volatile major stock benchmark but the uptrend will not be invalidated unless we see a violation of support at 6560. Buy positions can be taken here but stops will need to be generous given the broader volatility of the index. To the topside, major resistance does not come in until the mid-6800s, so the risk to reward ratio for buy positions looks highly favorable.
The DAX on the other hand is looking like one of the most stable uptrends in the major benchmarks and this trend will not be violated unless we see a break of support at 9000. This is quite a ways away, however, so those bullish on the DAX will need to exercise patience.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.