Stocks Rally Despite Weaker Economic Data
Spread betting markets saw slower price activity in the early parts of the week, as investors were squarely focused on Friday’s employment data out of the US. Non Farm Payrolls figures from January showed a slight improvement relative to the previous month, but the final results were still below the market’s consensus estimates. The US economy added 113,000 new jobs for the month, much lower than the 180,000 that was expected by analysts and only a marginal sign of progress after the 75,000 new jobs created in December.
But even with these disappointing figures, stocks managed to post rallies. The S&P 500 showed two-day gains of 2.6%, the best performance since the middle of last October. But what is most significant about this activity is that it shows investors believe that the broader economy will be able to withstand tapering in Federal Reserve stimulus programs. We have already seen two Fed decisions to cut monthly asset purchases by $10 billion. And since we are not seeing any drastic changes in macroeconomic data, investors are taking the opportunity to continue buying stocks on dips.
This bodes well for all of the major global benchmarks for the remainder of this month. Broader optimism that global GDP growth will continue to show expansion is now seen overcoming any limitations that might otherwise be created by central bank decisions to make reductions in monetary stimulus. Additionally, we have already come off of the long term highs in all of the major benchmarks (the S&P 500, the FTSE, and the DAX). Many investors are now viewing this as a new buying opportunity given the fact that we are not seeing significant declines even after economic data shows areas of weakness.
The S&P 500 has come off by more than 100 points, relative to its all-time highs. But the stabilization seen since suggests that we now have an important bottom in place at the 1740 support zone . The real test going forward will be an hourly break back above support turned resistance at 1780. If this break does occur, we should see another test of the all-time highs before the end of the month.
The FTSE 100 is showing some encouraging signs after finding support in the 6450 area. Prices dropped forcefully through the psychological 6500 level but as long as support holds, markets should have no problem re-taking this level next week. Overhead, the next major level to watch can be found just under 6700 but if we see a weekly close above 6500 this area becomes the next bullish target.
The DAX is still showing an intact uptrend after prices found support in the 9080 region. This marks another higher low and is suggestive of further rallies going forward. First resistance can now be found at 9400, and an upside break here indicates another test of the all-time highs.
About Richard Cox
University Teacher in International Trade and Finance. Specialty in technical/fundamental analysis of the commodities and currencies markets.