Stocks Back to Flat after Mixed Data
Stock markets had sessions of mixed trading into the end of the week, as investors digested mixed employment data that sent a few different signals to markets. Specifically, the June Non Farm Payrolls numbers came in on the weak side, with 162,000 new jobs added on the month (against the consensus expectation of 188,000). But while this number came in on the low side of expectations, the accompanying unemployment rate ticked lower to 7.4%, which is slightly better than the 7.5% print that analysts were anticipating.
From the perspective of the US Federal Reserve, the unemployment rate component is being used as the preferred gauge in determining the overall strength of the labor market, and it is now becoming clear that the economy is inching closer to the central bank’s target rate of 6.5%. The initial market reaction after these data pieces were released was to sell stock markets (in both developed and emerging markets), as it is not uncommon for spread betting traders to base short term positions on the headline NFP figure.
Once markets had more of an opportunity to interpret all of the data released, however, we saw some recovery in these losses and a close that was ultimately little changed. Looking ahead next week, the focus will shift back to corporate earnings reports, which are also looking positive — with roughly 75% of the reporting companies so far beating market estimates. We will need to see continued strength here in order to push the major benchmarks to a higher close next week.
The S&P 500 continues to impress, with the index posting its first close above the 1700 level. From a technical perspective, this is tricky trading territory as there is no historical resistance above (we are still trading at all time highs), so it makes much more sense to wait for corrective dips before getting long again. Initial support can be found in the 1670 area, which is a good starting point for bullish traders that are spread betting on an hourly time frame. A break of 1670 suggests a drift back toward 1640.
The FTSE 100 continues to press forward back near its highs for the year but we are still well below medium term resistance levels at 6860. Overall, however, this is still the bull target before the end of the year, given all the key breaks of historical and Fib resistance seen in the last few weeks. Look to buy back on dips toward support at 6495.
The DAX is starting to recover some of its earlier weakness and is once again pressuring resistance areas in the 8530 region. Those trading on the shorter term time frames can used this area as a basis for new selling positions, but keep stops tight as a break here will accelerate gains.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.