US stocks still near recent highs despite NFP miss

Summary:

  • US stock close to 1-month highs

  • Market looks through NFP miss; Wages beat

  • Powell speech due at 5:30 (BST)

 

The price action for US stocks this week has been pleasing for bulls with a soft start after another gap lower over the weekend marking the low for the week and the highest level being printed in the past hour. This sort of move is in keeping with the kind of thing you’d normally see in bull markets with weakness to start out and ending on or near the highs. Should the market manage to finish today around current levels or higher then a large bullish weekly candle will have been printed and the outlook for further gains going forward would become more favourable.

The market reaction to the NFP release has been typically volatile, but lacking a clear direction at the time of writing just over 45 minutes later. Source: xStation 

 

The main economic release of the month has come out in the past hour with with the eagerly awaited US jobs report coming in a little on the soft side. The non-farm employment change was 130k against a consensus forecast of 163k while the prior was revised lower to 159k from 164k originally. This means the net two month revision is -20k. While the headline is something of a disappointment there was better news to be found in the wage figures with a 3.2% Y/Y rise in average hourly earnings above the 3.0% expected.     

A strong ADP print earlier this week was a bit of a red herring when it came to today’s release with the NFP coming in worse than forecast and at its 3rd lowest level this year. Source: XTB Macrobond 

 

The question for investors now is whether bad news is actually good for stocks as it could well weigh on the decision makers at the Fed and lead to a more accommodative monetary policy going forward. There’s not been a clear market reaction in the S&P500, but the failure to sell-off is perhaps telling after what is, all things considered, a soft data point. Further insight into how the Fed see the future policy path may be revealed later when chairman Powell delivers a speech in Zurich. Before today’s data the market was already assigning a high probability to 3 further 25 basis point cuts this year, but the chances of a 50 bps move, while still unlikely will probably tick higher after this release.

The S&P500 is on course for a second solid weekly gain in a row. The market is now up around 170 points from last week’s low and resides less than 2% from the all-time high at 3029. Source: xStation   

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