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UK stock market commentary (March 08, 2013): Will US non farm payrolls provide further boost to this rally?

It is non farm payroll day and investors are hoping to see more jobs being created by the world’s biggest economy. The US labour market is still far from being in its best shape and is still yet to show signs of returning to pre-crisis level with today’s rate actually expected to rise from 7.0% to 7.1% taking a small step away from the Fed’s target of 6.5% before it considers ending its QE program. This is where the markets find themselves in this precarious situation as much of the economic data shows stagnation at best but as long as that is the case central banks will be there to act as a backstop. The number of new jobs is expected to come in at 160k, similar to the previous month and is yet to really show that the labour market is turning the corner. There needs to be several months of 200k+ in the non farms to really start seeing a dent in that unemployment rate and bring it back to the magic 6.5%. That is only likely to happen with more QE or if not more, QE for longer and that is likely to full this equity market rally even further.

Today’s figure has a chance of coming in better than the expectations as so far this week we have seen the ADP number beat and the weekly claims were lower. It will also be interesting to see what if any revisions to previous months are revealed.

Yesterday saw the Dow Jones continue to ride higher on its the bullish momentum, posting another all time record yesterday at 14,354 before closing up 33 points at 14,329. The very optimistic investors sentiment that we’ve seen across the pond looks to be continuing and with day after day of gains there seems to be little that can stop this momentum. So we now have a situation of where to next for the Dow? Some medium term targets are suggesting we could see 14,700 which is seen as the next major resistance level. To the downside 13,650 is the major support over the medium term. For the FTSE this means a good start to the final day of the week with the index up some 40 points to 6480 at the time of writing. Clients continue to remain sceptical that the strength is able to last as they remain largely short of the London market.

In the near term support and resistance is seen at 6375, 6295, 6230 and 6500, 6540 showing that resistance is nearer than the support levels so it’s little wonder that clients believe there are more hurdles ahead for the index. In the face of speculation of a possible cut in the European benchmark interest rate, the ECB kept it on hold at 0.75%. However, President Mario Draghi’s comments that ‘data suggest the region’s economy will stabilize this year’ was somehow enough to spur a rebound in the shared currency versus the dollar. As a result the EUR/USD pair gained 114 ticks to 1.3105 with an advance in the Spanish bonds also implying an improvement for the overall confidence in the euro area. This morning the EUR/USD pair is just floating below the 1.3100 level at 1.3090 and near term support and resistance is seen at 1.3060/30/1.2980 and 1.3120/55/75.

Gold closed down $6.1 bucks down at $1578.1 yesterday and is trading steady around the $1580 mark today as investors await the US non-farm payroll figures at 13h30 London time. Any significant boost in the numbers could turn even more buyers away from the precious metal after recent upbeat data. Moderate growth is expected, however, if the rate undershoots expectations this could entice the bulls back into the market as the unemployment rate is pegged to the Fed's monetary policy. Historically, loose monetary policy to aid unemployment has led gold to record rallies.

Positive news on the US economy easily triggered a recovery for the WTI crude prices which closed $1.00 up at $91.38. It was the reassurances from the ECB President Mario Draghi regarding the economic recovery in Europe which also supported the energy sector yesterday. Last but not least, a weaker greenback coupled with a stock market going from strength to strength accentuated the rise.