There was a concrete recovery in U.S. markets overnight, yet this is indeed astounding bearing in mind the profit taking and reactions to the good and bad news that resulted in steep declines last week.
Last week’s non-farm payrolls is indicative how the Fed considers the employment market. The range of the labour market indicators is a good sign that there is still a substantial underutilisation of labour resources considering that the focus the Fed is putting on wage inflation along with the quality of employment both play an important role regarding this notion.
The average hourly earnings on the month-on-month basis decline to 0 % and remained significantly lower by historical peaks at 2 % year-on-year with participation still sits near 1977 levels and the full-time part-time employment compilation is still on the favourable side.
The previous week’s trade in the United States was boosted by a stronger earnings such as the lower for longer theory. U.S. bonds at the lower yield curve of were able to move slightly up in the span of a few hours, eyeing the curve steeping further which added strength to the argument that the market is indeed falling back into the line with the Fed’s position and that the rates are unlikely to move at all until the middle of 2015.
The reactions of the past three days regarding market pundits have been relatively quick to revert to using overrated terms such as correction, bubble, overvaluation, equity crash and even the long time seemingly irradiated wall of worry is back in its usage.
To give a better perspective, the largest loss of the S&P saw last week was just over 3 % for the entire week in total was able to lose 2.1 %. For almost 18 months ago, a high 2 % intraday move was regarded the norm of the trade.
S&P futures are still yet to see a 5 % plus pull-back in 126 trading days. This basically shows that the trend is not only needing of a good fix, but us still pointing to a higher position. S&P September futures are presently sitting at the 1932 which was six points below the physical market at 1938.
From the looks of things at present, there is a possibility of a correction is highly unlikely in the interim as the Fed is still well and truly behind everything. October is still considered a stumbling block as the asset purchase programme is wound up in full but earnings are still solid enough to hold the line as is in the U.S. economy which is technically the trend albeit the small margin.
Staying ahead of the Australian open
Earning season was finally roaring into life with Cochlear, EDI and Transurban releasing their full-year number. None of the aforementioned were overly spectacular yet, the COH will be a rather interesting point of consideration as it began to move in 10 % ranges on the release of its earnings over the past few years.
Moreover, this has been due to the sluggishness of the core U.S. and European earnings streams along with the ever-increasing competition in this space. This will be one to look out for especially of a possible move anytime in the coming weeks.
There is also a long list of data from Australia regarding AIG’s services, the trade balance and the all AUD currency watchers will be turning their attention to the rates and decision statement. As interesting as these releases are , there is unlikely any huge importance from this week’s trade, with rates remaining relatively unchanged and that trade balance is likely to be flat month-on-month considering the meagre increase in demand from China being offset by seasonality.
The RBA is possibly eyeing to hold out until next week’s monetary policy statement to really explain its position to the affected party. Furthermore, the leads coming from the overnight recovery is indicative of a good start, however for the month of July the ASX was able to add 4.4 % which is still ahead of the majority of global markets despite the ASX 200 moving slightly down to the 5537 level.