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After all the recent fear and uncertainty that markets’ upcoming monthly ‘fixes’ might be reduced due to the dealer restricting supply on improved economic/labour market outlook, the major piece of data used to decide supply (NFP) came in at a level which was OK but neither good enough to intensify fears of restricted supply nor bad enough mean major relief that supply will remain at current levels for the foreseeable future. A bit of a non-event really, but a welcome dose of calm at the end of a third week of increased volatility, and markets are ticking up as we write.
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Non-Farm Payrolls (NFP) of 175K job additions in May beat the headline consensus of 165-170K. However, once a 16K downward revision to the prior month and an uptick in the unemployment rate (7.6% vs. 7.5%) is factored in, the US Labour Report was a little negative and still a way off the 200K/month being looked for. While you might see a slight negative as being bad for markets, the fact is traders are so hooked on central bank stimulus that any data implying continued money printing is taken well, hence the uptick in bourses as the report is digested across the world.
Although we speak of some calm after the world’s #1 economy updated on its jobs market, be aware that this weekend sees #2 (China) update on its Trade Balance, Inflation, Industrial Production, Investment and Retail Sales and #3 (Japan) update on GDP. These numbers could be key in dictating sentiment in Asian markets early on Monday morning and how European bourses open at 8am, with China key as a signal of global demand and emerging market strength and Japan seeing massive intervention to pull it out of depression and deflation. The updates could boost the view on global growth or see fears of slow recovery return. NFP may even be forgotten by Monday, with the danger being QE3 taper fears just dormant for another month.
With the FTSE100 now well off its overnight low of 6283 and back with a 64XX handle, some ground has been made as fear of less QE3 has receded (now talk is of next year rather than next few months). Bulls will be asking whether there is recovery potential to the 6875 highs abandoned on 22 May. However, the Bears will still be eyeing the 3-month lows of 6220 should there be a deterioration in global outlook (this weekend’s data could be the architect) or indeed a second bout of the recent QE3 taper tantrum, especially if those pesky Fed members start waxing lyrical again with their conflicting ideas on the Fed’s next move – something conspiracy theorists claim is designed to take the froth out of markets too pumped up on loose monetary policy and to avoid asset bubbles.
Let’s see whether this bounce can maintain its northerly course and recoup some of the recent losses. Remember though that part of the reason we corrected so quickly was that markets had risen so quickly. So don’t expect any recovery to be a 1-month affair. If it is, be worried. Remember your parents telling you not to pig out on sweets, so you don’t make yourself sick? If anything we should be hoping it takes a little longer, with proper digestion along the way – markets don’t go up or down in a straight line, even if they tend to sell-off more quickly than they rise. And if it means we don’t see 68XX again for another few months then so be it. It’s better to get there in the end and be ‘able’ to take profits than have to make an emotional decision as euphoria turns to panic.
As always, have a great weekend, and bring on the warmer weather.
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