– Well, what a cracking result for the US jobs market in last night’s May non-farm payrolls which printed a massive 288,000 – well above the market’s expectations of around 215,000. You can read economist’s reactions here. But for a local flavour, the NAB economics and markets team summed it up nicely in their Market Today report this morning.
Well, that was a good one. We’ve been waiting for consistently good US data and now we are getting it. The USD was modestly enthusiastic about it; yields less so, but the fact is, the US labour market is improving. What more do markets, and the Fed need to see?
Indeed the risk is, with April non-farms increased to 304,000 jobs, that the time between the end of QE and actual increases in US rates will now be truncated.
– But that hasn’t fazed stock traders who took the Dow to a close above 17,000 for the first time. At the early close, for the 4th of July holiday, the Dow was up 92 points at 17,068 for a gain of 0.54%. The Nasdaq rose 0.63% and the S&P 500 was similarly ebullient up 10 points or 0.53% to 1,985.
– At the same time that the fireworks of non-farm payrolls were happening in the US, ECB President Mario Draghi was holding a press conference after the ECB decided to leave rates on hold. You can find a wrap of what he said here. But the key for me was the comment that the entire Governing Council is behind unconventional policies, suggesting QE will come eventually.
– Stocks seemed to like the “rates low forever” meme and the DAX rose 1.19% to take it back above 10,000, closing up 118 point at 10,029. The CAC was 1.02% higher but the FTSE lagged a little, up just 0.71% at 6,865. In Milan and Madrid, stocks rose 0.95% and 0.67% collectively.
– All of which has helped the Australian market break higher with September SPI 200 futures up 27 points overnight at 5480 bid.
– Asia had a poor day yesterday with the Nikkei, Hang Seng and Shanghai stocks all down a little. But you can forget that today with the global equity strength overnight and the weaker yen. The only data is Hong Kong Markit manufacturing PMI.
– On Bond markets, the initial weakness which drove the US 10s up to 2.69% gave way to buying and the close of 2.64% was pretty solid, all things considered. Bunds closed at 1.29%, unchanged after moving around a little in sympathy with the US but balanced by Draghi. Gilts closed at 2.75%.
– Locally, the yield curve moved yesterday with the weak data and RBA warning. As highlighted earlier this morning, the short end has started to price in the chance of a rate cut now and 3s and 10s have rallied also. Aussie 3s in Sycom trade actually lost a few points though, crashing into serious technical resistance to finish this morning at 97.33 (2.67%). The 10s lost 4 points to 94.605 (3.295%).
– On Currency markets, the US dollar caught the updraft stronger jobs. Euro lost 0.35% to 1.3610, GBP was only down a smidge to 1,7151 while USDJPY rose 0.43% to 102.19. The Aussie was the big loser, with a combination of drivers seeing it lose a cent in the past 24 hours and it sits at 0.9344 this morning.
– On Commodity markets, Iron Ore slipped back a little unable to break solid resistance, which is highlighted in Michael McCarthy’s technical piece below. September futures fell 16 cents to $96.42 tonne. Newcastle Coal for September also fell, losing 20 cents to $70.55 tonne. Crude fell 0.40% to $104.09 Bbl but Dr Copper rose another cent to $3.25 lb. Gold pulled back to $1,319 under the weight of the USD while Silver settled at $21.12. On the Ags, Corn fell 0.36%, Soybeans a similar amount, but Wheat was up 1.11%.
On the data front today it is very quiet with only German factory orders out.
Happy 4th of July – it should be a quiet day once the markets catch up to the overnight moves.
And now from CMC Markets’ Michael McCarthy is today’s Stock, or should we say Commodity, of the Day
Iron ore prices are continuing to rise with other industrial metals as markets re-price resources in light of the brighter global manufacturing outlook. Traders looking for leverage to this development could consider Fortescue Metals.
The reason is Fortescue’s high volatility. The 20 day historic volatility has risen from lows around 30% to above 50% (bottom of chart) – comparing well to an index volatility of 10.5%. This implies an average daily move in FMG above 3%. Yesterday’s 5%+ move is a case in point. It came on the back of a much more modest iron ore price rise of 0.8%, making it the traders’ choice.
The chart is suggesting potential for an explosive move. A break above resistance at $4.66 would complete a head and shoulders formation, and point to a possible sharp rise to highs around $5.70. This is one to watch at today’s opening, as any strength could start a technical scramble.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC