Non-farm payrolls drives stocks up and US dollar down

December 9, 2013

Friday night was an interesting night and if you would have asked me what I thought might happen if non farms printed above 200,000 before the release I would have got most markets, except USDJPY, wrong.

The print of 203,000, with positive revisions to some previous month, gives the impression that the US economy is really starting to get some economic momentum. But this didn’t seem to bother traders on the stock market, who took shares sharply higher even though jobs growth increases the chances of Dectaper at the FOMC meeting next week.

So at the end of trade stocks were higher with the Dow rallying 198 points or 1.25% to 16,020, the Nasdaq was 0.74% higher at 4,063 and the S&P 500 was up a stunning 20 points or 1.12% to 1,805.

As I noted above it is hard to fathom the positive reaction to strong data given fear of the Fed’s taper but if we draw a line through the US dollar’s moves (weaker against Aussie and Euro) as well, it seems traders are working on the premise that any taper is only going to be small, and rates are staying lower for longer. Equally though, the big jump in Consumer Credit and Consumer Sentiment might have contributed to a belief the economy might be able to support stock valuations on its own.

In Europe, stocks were selling off just before NFP was released but the rally in US stocks dragged prices higher. The FTSE closed at 6,552 up 0.83% and the DAX was up 0.96% at 9,172. In Paris, the CAC rose 0.71% to 4,129, while in Milan the FTSE MIB rose 0.73% to 18,124. In Madrid, stocks were sharply higher than the low of the day but up just 0.09% on the previous close at 9,401.

The SPI200 on the ASX has had a very strong bounce off last week’s low around 5260 and closed up 25 points on Friday’s close at 5209 bid.

I’m still short and will evaluate the trade after the next 24 hours of trade and decide whether to cut or let the trade run.

On global FX markets, the reaction seemed back-to-front, with euro rallying strongly to finish the week above 1.37. GBP lagged the move but still finished higher at 1.6344. Only USDJPY’s reaction of the big 3 made any sense and the dollar rallied to close at 102.88 looking biased back toward 104 in the next day or two.

The Aussie dollar rallied also and has had a fairly good recovery off support under 90 cents we saw last week. Trading just above 91 cents, the Aussie looks biased back toward toward 92 cents this week. Data out of China over the weekend that showed a big surge in exports, which were up 12.7% year-on-year – much higher than expected. The ANZ reported yesterday that this was “due to better demand from developed economies, as indicated by improving US ISM and EU PMI. Shipment to the US and EU rose by 17.7% and 18.4% respectively, from 8.1% and 12.7% in the prior month.”.

This should help Aussie dollar sentiment even though imports were only up 5.3% year on year – we already know that Port Hedland is running near record rates and last week’s data showed China’s share of Australian exports at an all-time high.

The Aussie has made a good low just below 90 cents and found support. Spec positions on the CBOT are as short as they have been for some time and the Australian majors seem to think that the Aussie should be higher not lower. So support is coming in and we have a market at risk of reversal of an acute short position.

I am long AUDUSD and targetting 0.9140/50 then 92 cents.

On commodity markets, Nymex crude closed the week much stronger at $97.82 Bbl for a gain of 5.26% week-on-week. Gold remains under pressure at $1225 oz and it lost 2% last week, while Copper was at $3.26 lb. The Ags closed the week very quiet with Corn up 0.3% to 424 bushel, Wheat fell 0.12% to 637 and Soybeans were down 0.11% to 1326.

If you trade crude you can see what a strong rally this has been off the trendline support that both stretches back to the 2009 low and also forms the channel that Nymex Crude has been in since May this year.

It’s a strong rally but the $98.60 200 day moving average might be a decent place to pull up.

On the day, manufacturing sales are released in New Zealand, Japanese GDP, money supply and trade balance are out along with Chinese CPI (which will be important) before German trade data (Euro supportive?) and Italian Industrial data.

There is nothing material in the US tonight.

Have a great day and good hunting

Greg

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