European markets finished what turned out to be a fairly decent week with a bit of a whimper on Friday despite what can only be described as a bit of a “goldilocks” US jobs report.
US markets, on the other hand finished the week very much on the front foot with the Nasdaq making yet another record high, while the S&P500 closed near the reaction highs seen in the wake of last month’s aggressive market sell-off. As far as US investors appear to be concerned the fear and loathing at the beginning of February almost appears a distant memory, while here in Europe, investors still appear reluctant to take markets back to their January highs to the same extent.
One of the main reasons for Friday’s market reaction was a payrolls report which, for all the reports that the US labour market is showing increasing signs of tightness, the monthly numbers don’t appear to support that supposition.
A headline number of 313k, with upward revisions to previous months of over 50k, and a rise in the participation rate, would suggest that there is much more slack in the US jobs market than most people think.
This appears to be supported by the fact that wages growth slowed from 2.9% in January to 2.6%, missing expectations of a rise of 2.8%.
The unexpected slowdown in the pace of wages, while not preventing a rate rise later this month may well take some of the steam out of recent expectations of up to four US rate rises this year, that followed last month’s wages numbers. Despite the weakness in the wages numbers the US 10 year yield did jump back towards 2.9% reinforcing the fact that rates are still expected to rise, even if the pace of those rises remains up for debate.
US data this week may shed some further light on this debate with the latest CPI and factory gate inflation data, as well as US retail sales for February. The last two months has seen a slowdown in US consumer spending, despite data that shows the US economy still appears to be in fairly good shape, however for now all the fretting about the prospect of an overly aggressive US central bank can probably take a back seat for a bit.
Financial markets also appear to be shrugging off concerns about the tariffs on steel and aluminium that were announced by President Trump last week, on account of the exemptions for Canada and Mexico, as well as the fact that they won’t start for at least another 10 days or so, as other countries lobby to avoid them.
Despite this apparent softening of tone the President did suggest that he might look at measures against European car makers in the event of hint of retaliation by the EU, raising some concern that the recent escalation in rhetoric over trade may well be the opening gambit in a wider shakeup of global trade.
While US markets appear to have recovered some of their mojo, the same cannot be said for markets in Europe which are struggling to rebound meaningfully from their recent lows. Concerns abound with respect to the political backdrop in Europe with Italy now replacing Germany as a potential pressure point. There is also the fact that recent economic data has shown that the vibrant growth story of the past few months in Europe may well be starting to slow, at precisely the time that the European Central Bank is looking at easing off the monetary accelerator.
The pound is also expected to be in focus again this week ahead of tomorrow’s spring statement where the Chancellor of the Exchequer, however it is likely to be a fairly low key affair. The Chancellor will be pleased to see that he is on course to reduce government borrowing by at least £10bn more than expected due to higher than expected tax receipts. He is likely to find himself under pressure to loosen the purse strings, however that may have to wait until October when we have a better idea of the type of deal that is on the table from the EU.
EURUSD – found support at the 50 day MA at 1.2270 last week after the failure at 1.2446 earlier in the week. A fall below 1.2260 would suggest a retest of the range lows at 1.2160.
GBPUSD – struggling to rally significantly at the moment with resistance at the 1.3920 level and last weeks high. The large resistance at 1.3980 remains a key level. On the downside we have support at 1.3710, this month’s low, and below that at 1.3660.
EURGBP – failed to push significantly above the 0.8950 level last week and has slipped back down again. This area remains a key resistance area, which while it holds could prompt a return to the 0.8870 level, with a break retargeting the 0.8810 area.
USDJPY – managed to rebound off the 105.20 area last week but until the subsequent rebound takes back above the 107.20 level, the risk remains for a return to this month’s lows. A move below 105.00 targets the 100.00 area. We need to move above the 108.30 area to stabilise.