The current week will be summarized with trade balance and University of Michigan sentiment figures in the US. However, before that there will be hardly anything crucial, save for the inflation report in the UK shaping sentiment for the pound. Against this background, China’s monthly figures (including output, retail sales, trade balance and inflation) might attract more attention but are unlikely to influence global sentiment in a decisive manner.
This might mean, that investors will be encouraged to have a look back at the data released last week. Here is the picture they will be looking at: corporate sector is on the way up, but a broader economy is still lagging behind and the Fed is not going to place hurdles on a path to a more established recovery. The strength of improvement in a corporate sector has been confirmed by the ISM index leaping to 55,7 points – the highest since April 2006. Although ISM services retreated slightly, both indices are above 50 points threshold and optimistic views from companies (Cisco seeing increased tech spending) confirm a revival in this field. While this stopped a massive layoffs, companies are in no rush to increase employment – actually many of them enhanced profits by trimming labor costs. Labor market data released last week (payrolls, ADP) were weaker than expected as unemployment rate climbed to a double digit level – for the first time since June 1983. This means, that the Fed will be in no rush to tighten monetary policy and indeed the statement contained only minor changes, easing expectations for future hikes.
That picture is mildly positive for stock markets. Labor market data were weaker but only moderately and a paced recovery here might be on its way. At this juncture of the economic cycle, it is more important for the corporate sector to improve as this fuels optimism and the data here are reassuring. While this helped the bulls to reverse a selling wave last week, a successful attack on the resistance at 1100 point on S&P500 is far from certain in the nearest future.
The bulls on the EURUSD seem to be stronger. Apart from a typical relation with the stock markets, the bulls here were reinforced by a relaxed stance of the Fed and a suggestion made by the IMF that the dollar is the main funding currency in carry trade transactions. The high at 1,5063 is well in range but one needs to remember about a related 1,00 barrier on the USDCHF.
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Przemysław Kwiecień  |
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