Key Talking Points:
- Employment/Population ratio shows current job levels are as high as 1983
- DAX 30 and IBEX 35 struggle to keep bullish momentum
Once again, the NFP jobs data was the victim of high expectations as the ADP figures had set the bar high. Friday’s payroll data of 559k new jobs in May was a sign that the economy is heading in the right direction, but markets were more focused on expectations than the actual reading. That said, the lackluster data was a sign that the Fed will be less pressured to hike rates during the summer, as the Central Bank is waiting for a few months of high employment data before changing its monetary policy, something that may take longer than originally expected, which allows equities to enjoy flexible financing conditions a little longer. In fact, looking at the jobs data as a ratio to population, the current job rate is still a long way away from where it was before the pandemic, even lower than before the 2008 crisis, which backs up the Fed’s approach to secure stable job creation before tightening monetary conditions.
US Employment/Population Ratio
Given Friday’s data, focus may shift to this week’s CPI data out on Thursday and we may see yields start to pick up again. The latest jobs report told us that despite vacancies increasing, US workers are still reluctant to return to work, maybe a sign that the current stimulus measures are delaying people’s interest about returning to work. This has put upward pressure on wages, with some high profile companies having announced a rise in minimum wages in the last few months, which means we may see inflation concerns rising again.
DAX 30 Levels
The DAX 30 was able to finish off the week above the ascending trendline as positive momentum remained in play. The daily chart is showing overbought conditions in the short term, with some of the latest candlesticks showing some indecision, pointing to some possible weakness in the next few sessions. The daily candlestick has already dipped below the ascending trendline, finding support just above the 15,600 mark, and the index is just 14 points away from the all-time high seen last Friday. The 90 point range seen already in today’s session, just two hours from the European open, suggests that we may see volatility tick up as buyers and sellers fight to take control over the day. If bullish momentum is able to hold, I would expect to see a new high, nearing the 15,720 area, but a selloff towards 15,600 would be in play if bears take control.
DAX 30 Daily chart
IBEX 35 Levels
The Spanish stock index has been struggling to keep its recent bullish momentum, having stagnated just above the 9,250 level since the 14th of May. The IBEX had had a strong run since the beginning of March as it was playing catch up with some of its European peers, so this could well be a healthy correction along the bullish trendline as buyers take a breather. That said, the threat to the summer season in Spain as travel within Europe continues to be limited is likely one of the main causes of the stagnation of the index, which is largely exposed to tourism multinationals. Because of this, the IBEX may consolidate sideways for a little longer as the summer season unfolds, with buyers unwilling to bring the index higher until there is more clarity on the situation, and sellers unconvinced that fundamentals are showing weakness.
For now, the 9,000 seems like a good area of short-term support, followed by the 8,920 line where previous support has been found. On the topside, 9,255 is showing strong resistance, with a break above this area likely leaving the road clear towards 9,500.
IBEX 35 Daily Chart
— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin