Stocks firm before NFP, Dax bulls eye all time high
Fading Middle East tensions and a US-China trade deal so
close you can smell it helped lift the three major US indices to record highs
The Dow rallied 200pts and got within 12pts of
breaking the 29k level. Overnight futures prices have ramped higher, taking the
Dow through this level and indicating it could open around 29,040 when the cash
equity market opens. The S&P 500 ran into a brick wall at 3275 but futures
imply a breach today on the open to 3283. This steamroller is not one to get in
front off to pick up pennies.
shares smashed new all-time highs to hit $310 with data showing an 18% surge in
China sales. The stock has already rerated to trade about 25x forward – much
upside left? Needs solid EPS growth which I think we will get in Q4. We’ve already had decent indications from the Services side
of the business indicating that its pivot to being more of a Services
business is in full swing. App store customers spent a record $1.42bn between
Christmas and New Year, 16% up on last year, the company has said. Management
also revealed that Apple News is drawing over 100m monthly active users across
the US, UK, Canada and Australia. This is all to the good – Services margins
are about double that for the rest of the business and will mean re-rating of
the stock going forward.
Asia has been broadly higher and European equity markets are on a firm footing
The DAX is looking to open higher, through 13,520 adding to yesterday’s
1.3% gain. A tilt at the all-time high and a breach of 13,600 is on the cards
if sentiment holds.
Today’s nonfarm payrolls are the main economic
event. Markets anticipate payrolls +162k, with average earnings +0.2% and
unemployment at 3.5%.
Remember last month a blowout jobs number sent equities
higher along with the US dollar and Treasury yields, as it suggested the US
economy was doing better than many corners of the market feared. The headline
print was miles ahead of expectations, coming in at 266k vs 180k expected.
Unemployment at 3.5% was exceptionally strong, too. September was revised
up 13k to 193k, while October was also revised higher by 28k to 156k. Private
payrolls also very strong at 254k. Should we worry about the Fed pivoting again?
I don’t think so and the market clearly thinks the same.
The Fed can stand this sort of hot reading for a while yet
– jobs growth is averaging only 180k this year vs 223k last year. And whatever
privately you might think about whether the Fed should be maintaining an easing
bias in this environment, it’s made it very clear that it will take a sustained
and pronounced rise in inflation to warrant a hike.
The Fed has made it clear it will let inflation and the
economy run hot, so today’s numbers can’t really miss as far as equities are
concerned. A weak reading only raises prospect of quicker policy response and
may lead to the USD handing back some of the recent gains.
Oil remains weaker having taken a decisive step under $60 to trade
through the bottom of the rising channel it’s tracked since Oct. Support is
clear at $59, where our lower trend line meets the 50-day moving average, and
this may be where longs stage their defence.
Gold likewise seems to have based for the time being with support holding
around $1545. In early European trade we saw a push back to $1550. Real yields
are not supportive of pricing as they creep back higher.
In FX, the dollar is still bid. USDJPY is facing double resistance. Having cleared the 200-day and other MAs bulls are looking
to break the trend line drawn from the falling highs since the swing high of
Oct 2018, at 109.50. Then there is long term 61% Fib level to cross at 109.60
where we have seen rallies hit a wall several times lately. This area is offering
a decent amount of resistance as a result but if taken out could see a sharp
EURUSD was little changed at 1.11090.
Yesterday’s doji candle looks more like indecision than reversal but having
touched on the 50-day moving average and rejected it, bulls may sniff
something. However the momentum remains with the bears.
GBPUSD has come off its
lows to trade at 1.3080, following Mark Carney’s outgoing speech which the
market decided was more dovish than before. He’s on the way out anyway, two
doves are already voting for cuts – the BoE will cut this year. What Carney
says is no longer relevant.