Stocks Higher as Economic Data Outweighs Political Uncertainty
Spread betting markets pushed higher one again after getting a slow start to the week. Most of the attention of traders was focused squarely on the results for the February Non Farm payrolls report, which were widely expected to show relative weakness when compared to historical averages. These expectations were partially supported on Wednesday as the preliminary ADP employment report indicated weakness in private sector hiring. The ADP number is generally used as a precursor for the for the government figures that are released two days later, so when the ADP numbers come in lower than expectations we see increased assumptions that the same will be true for the Non Farm Payrolls, as well.
This led to some early-week positioning for a number lower than the initial projections of 155,000 new jobs for the month. In stocks, this meant establishing smaller sell positions near the recent highs. So when the final results showed a positive surprise (+175,000), these traders were forced to cover their positions. The increase in price volatility sent equity markets valuations to new record highs, and this is where the S&P 500 closed the week of trading.
Looking ahead, it will be important for traders to assess how exactly these numbers will inform monetary policy settings at the US Federal Reserve. The headline NFP figure was a positive surprise, but we did also see an uptick in the unemployment rate to 6.7%. Rising stock markets show that spread betting traders are willing to accept risk, however, so these are trends that are likely to continue for at least most of next week.
The S&P 500 is moving through all known resistance levels, and this makes it difficult to plor clear upside targets. As such, most of the attention is likely to rest on psychological barriers and the next level on the topside can be found at 1900. The best strategy at this stage is to look for entries to buy on dips. First support comes in at 1840, which was the main resistance level from last month. Buy positions can be taken here but a downside break there would turn the bias sideways.
The FTSE 100 is showing a slight retracement period after breaking highly important resistance in the 6850 region. Overall bias is still bullish, as we would need to see some breaks of major support before we can realistically expect to see further downside. First support comes in at 6700, shorter term buy positions can be taken in this area.
The DAX is in the midst of a bigger downside move than its counterparts, with prices now trading near 9350. But we are still trading at extremely elevated levels relative to long term averages and the overall bias does not turn bearish unless we see a weekly close below 9130.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.