As mentioned several times over the last few weeks the trigger for the markets is becoming the Wednesday 15.30 oil inventory number, yesterday the US GDP and Purchasing Managers numbers were both weak leading to a big sell off followed by slightly better than expected oil numbers which reversed the whole thing!
Popular numbers come and go through the years (although the Non Farm Payroll number has remained pre-eminent for a long, long time) and economists / analysts / commentators can argue about their particular relevance all they like but this does not get away from the fact that if the day trading markets want to focus on a data number they will do so.
The markets are pretty much where they were this time yesterday (a bit lower for the Dow, S&P and Dax but not significantly) and this high range of above 5100, 5700, 9700 and 1050 for the FTSE, Dax, Dow and S&P respectively is becoming very clingy. We have had several attempts over the last week or two to take us back down but none of them have amounted to much and the pull towards the highs has seemed irresistible. Shorts would have been happy for all of an hour or so yesterday but the move lower was quickly reversed and by the time the Dow’s session had finished the losses had largely been recouped.
Historically October is a bad month for equity markets, but then we observed that about September which started poorly and then promptly contributed to the best quarter of gains on record for the FTSE 100. But financial markets never forget and for those of use that remember the crash of 87, it was preceded by the second biggest quarterly gain on record (Q1 1987)!
So there seems to be a little apprehension to the start to this month and whilst we bounced strongly off the 20 day moving average on 28th Sep, we’re yet to take out the recent highs and some indicators are pointing downwards. A test of support around 5080 cannot be ruled out and looks more likely if the market is unable to take out the September highs around 5200.
The markets also seem happy to just drift sideways for the time being ahead of tomorrow’s NFP with currencies, gold and oil largely flat to lower. So far the economic data out today has not excelled with UK PMI figure falling back below the 50.0 market and for the euro zone the figure is still below the 50.0 mark. There’s more to come later with US income and spending, jobless claims and then the ISM manufacturing so it could be sideways until around lunchtime today. Then the real fireworks are expected tomorrow.
Oil is retreating a little after its surge higher yesterday as traders feel it was rather over done. Yesterday’s move does indicate that there are loads waiting on the sidelines to pile into oil if there’s just a sniff of anything bullish, but there are lots of claims that the move was too knee-jerk and down to window-dressing. We’re now around the upward trend line that was support for oil when it made its move from $39 to $70, so this might offer some resistance since we broke below this at the end of September.