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It’s a funny world when the sight of an improving US economy causes markets to fall into the red, but that’s the one we’re stuck with. This can be put down to yesterday’s massive lurch higher in Europe and the UK, and also to fears that a strong employment reading brings the start of the much-feared tapering process forward a few months. Such are the enlightened times in which we live. However, overall, it still looks as if this market is in the mood to make further gains, once the panic reaction to non-farms is out of the way.
In London the FTSE 100 enjoyed a strong morning, gaining around 50 points, but the market then performed a handbrake turn after non-farms, which will have caught out any trader who popped out for lunch in the sure knowledge that a solid finish to the day was in store. A decisive rejection of the 6500 level suggests that this is the new line in the sand for now, but with corporate news so thin on the ground today it was always going to be difficult for traders to push this market much higher on just enthusiasm.
In contrast to the eurozone, which continues to stagger like Atlas under the weight of its existential currency crisis, the US economy is showing its resilience, adding jobs despite the budget crisis in Washington. 195,000 jobs were added, although the economic rate remained stubbornly unchanged at 7.6%. April and May saw upward revisions, so the overwhelming reaction in the immediate aftermath was to see US stocks slip back. However, as cooler heads prevailed it seems the signs of growth were enough to tempt the optimists back into the market. Earnings season kicks off on Monday, so sentiment may shift again once fresh corporate figures start coming through.
At least crude oil reacted in a predictable way. Labour growth in the US economy signals further expansion in consumption of the black stuff, while reports of unrest in Sinai and concomitant fears about possible closures of the Suez Canal meant that traders were inclined to push oil up to its highest levels since the beginning of April. There was yet more bad news for gold fans however, as the yellow metal dived once again in the direction of $1200 on expectations that Fed easing will end sooner than thought.
Churchill once observed that the safest time to kick a man is when he’s down, and traders in sterling are using that opportunity to its fullest extent. Mark Carney seemed to push sterling off a cliff yesterday but the pound continues to stumble lower as the US dollar carries all before it. If the Bank of England is going to ease while the Fed tightens, then we could see GBP/USD testing the November 2012 lows in very short order.