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It’s that time again and despite being a shortened week post-Easter it has been a busy one. Disappointing Manufacturing updates from Japan, China and the US while we were scoffing chocolate were offset on our return by slightly better figures from Europe which saw the week start on the front foot and the UK flagship Index recover back to 6,500. This was in spite of UK manufacturing missing, UK Consumer Borrowing and mortgage approvals dropping and Eurozone Unemployment reaching a record 12% high. Help was at hand though with a better than expected rebound in US Factory Orders.
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From there, however the trend has been south, with improved Services data from China overshadowed by worse figures from Europe and US employment missing on three occasions (ADP, Claims & Non-Farm Payrolls). While North Korea threatens to go nuclear in the military sense, the BoJ did so in the monetary sense, announcing unprecedented policy easing to help reboot the long struggling economy. Peers BoE and ECB left things unchanged, but the ECB may be closer to a rate cut (negative for EUR) to help boost the flagging region’s austerity-ridden economy.
What is interesting this afternoon as the weak draws to a close is the negative market reaction to such awful US Non-Farm Payrolls (just 88K jobs added in March vs. 200K consensus) with equities (risk) selling off and gold (safehaven) rallying. With the US Federal Reserve’s QE programme explicitly linked to the labour market, we had presumed only a much better NFP figure would jeopardise the extraordinary US monetary policy keeping risk appetite alive (but still be good with more jobs meaning growth anticipated), with any other outcome just keeping the USD printing presses ticking over.
Intensification of the sell-off post Cyprus (after major gains since Nov), however, suggests waning interest/market addiction to QE, implying either the global economy is hunky dory (definitely not the case) or faith lost in the policy’s effectiveness in helping with US economic recovery and positive global contagion. After the strong gains of the second half of 2012, profit taking is also a very likely culprit. Why wouldn’t it? With the BoJ pledging to do even more than the US, and only the Nikkei benefiting, faith in global QE may have evaporated. This begs the question is it worth the BoE boosting its programme in months to come? That leaves ECB president Draghi who seems to have it sorted so far; just the threat of extreme measures has been enough. No need to act.
Looking at our FTSE 100 charts, we’ve had quite a turnaround with a 4.4% correction already from recent highs after a period of sideways movement while Cyprus negotiated assistance. With relative calm restored in the Eurozone the week began positively but the potent cocktail of weak macro data, scepticism about positive data points, potential uncertainty ahead of the all-important US corporate earnings season (starts Monday night)and fears of conflict, has seen a ditching of the key 3-month trendline of rising support. With this cast aside, we have quickly returned to 6215 – last seen in January. If support emerges here, recovery potential to recent highs exists with the current correction considered healthy within the longer-term trend. However, with so much doubt surfacing today, and glancing at a multi-year chart (something often overlooked), this week’s move could also be the start of something bigger? Keep abreast of the markets and on top of your charts.
As always, enjoy your weekend. The fun and games start again next week.
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