Jobs, Fed, Trade War, PBoC and Stock Market


Fresh optimism on the US-Sino trade front, PBoC policy relaxation, a new more flexible Powell Fed and a banner December Payrolls report all countered pessimism spawned by the Apple sales miss, an extended government shutdown and previous growing signs of economic slackening.

This welcome turn of events was anchored by the “remarkably strong” jobs report that contradicted the financial markets’ worst fears about the deterioration of the economy that had virtually priced out further Fed rate hikes and even flagged risk of a rate cut by year end.

Meanwhile, Fed Chairman Powell’s AEA interview, flanked by former Fed chairs Yellen and Bernanke, assuaged fears that he was out of touch with the markets’ contractionary inclinations. Indeed, Powell carefully chose his words to convey some sympathy with concerns about slowing growth (even mentioning the drop in the ISM) and stated that he would revisit balance sheet reduction, if it indeed was causing problems in the market. He expressed “sensitivity” to the message the markets are sending, and is prepared to adjust policy, which is not on a preset path, especially with muted inflation. He also ruled out resigning if requested to do so by Trump, given the independence of the Fed, which is “in its DNA.”

Meanwhile, stock as well as bond markets got a boost from the cautious words from Fed Chairman Powell, and progress on China trade negotiations.

This was reflected in the “V-shaped” 4.4% rebound on the NASDAQ comp Friday and near-14 basis point reversal higher in the T-note yield to 2.67%. Having probed 370 points, on Boxing Day, the USA100 Equity Volatility Index retreated back down to 6,124 area.

However as Wall Street’s roller coasters runs on for the 5th month in a row, the bulls’ latest attempts to boost price higher, does not seem sufficient yet. The price action remains below 50- and 200-day SMA, within a downtrend channel, and with weekly SMA crossing bearishly, (20- crosses below 50-week SMA).

Momentum confirmed a slight pickup since the Boxing Day rebound, however both RSI and MACD lines present weakness to continue northwards. In the long-term they both remain within the negative territory, suggesting that a V-shape could be triggered as a correction to 5-month decline.

The round 6,400 level and the Resistance seen, in the last week of December, could now provide an immediate Support area for the pair, at 6,390-6,400. A return below this area would reach 2018’s bottom.

To the upside 6,480 is now a Resistance, at day’s peak. If the asset closes above this area, this would indicate that upside surprise risks are prevailing for now. Above this barrier, the next level to be watched is the 50-day SMA, which has provided strong Resistance handle for the asset the past 5 months. Further gains could reach 50% retracement level which coincides with FE100.0 , at 6,745.

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Andria Pichidi

Market Analyst


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