Markets responded well to Fed Chair Powell’s key speech last Friday.
The main US equity index rallied both on the speech and then continued its strength during yesterday’s US session (whilst the UK was closed for bank holiday). As well as new record highs for the S&P500 and NDX100, Powell’s dovishness also brought about a softening of the dollar.
On the other side of that the GB£ was one of the key beneficiaries rallying further on Friday, having rallied from key support earlier in the week (against the USD). Strength in non-dollar currencies acted somewhat as a headwind for those equity markets (including large cap UK equities), especially when comparing their performance with that of the US markets. With equities making new highs in the US, and our short term market timing models starting to generate SELL signals, the key issue to consider is whether markets are about to roll over (having priced in a lot of the latest good news)? Or whether they are repeating their patterns from recent months and entering into a grind higher phase?
Key events this week are multiple. Later this week it’s the start of a new month and therefore a key data week for the US economy. ISM manufacturing will be watched closely on Wednesday, as will ADP employment, and then the key non-farm payrolls data will be published later in the week (on Friday). Last month the US created 943k new non-farm payroll jobs.
This month the consensus is for a further 750k net new jobs. Average hourly earnings (wage inflation) will also be watched closely. In the UK today’s consumer credit, mortgage approvals and mortgage lending data is important while later in the week the focus will be on the manufacturing and service sector PMIs (Wednesday & Friday), as well as Nationwide house prices (Wednesday).