Solid Payrolls Data Keeps Equities Rally Alive
????? Fundamentals
The U.S. Labor market continued to show signs of improvement in February, as the Labor Department reported 236,000 jobs were created last month. This was well above the market consensus of a gain of 160,000 jobs. The private sector was once again responsible for all the gains, adding 246,000 jobs, with the services sector creating 169,000 jobs and manufacturing adding 14,000 jobs. The public sector shed 10,000 jobs all at the state and local levels. Though federal government payrolls remained unchanged last month, it will be interesting to see what effects the “sequester” has on government payrolls in the March employment report.
The household survey of employment was also a positive surprise, as the unemployment rate fell to 7.7%, which was the lowest level since the end of 2008. Though all the headline figures were positive, we must note that January’s payrolls were revised downward to 119,000 jobs being created, vs. the 157,000 jobs reported last month. Equity index futures rallied on the positive jobs data, with the March E-mini S&P 500 futures trading at multi-year highs. Treasury yields rose after Friday’s report,with the 10-year note once again yielding over 2% and Bond futures falling nearly 1 full point.
Though the improvement in the labor market and signs of a strengthening economy are present, we have not seen the economically sensitive commodity markets rally in tandem. Prices for Copper, Oil and Platinum that would normally show some signs of strength during periods of economic growth are all lagging behind the strength seen in the equity markets. This phenomenon is either a sign that many traders believe economic growth will slow in the coming months, or we are seeing a significant shift by investors out of commodities and into equities, as money flows start to chase what is currently the stronger performing market.
???? Technical Notes
Looking at the daily continuation chart for the E-mini S&P 500 futures, we notice the mostly slow and steady ascent in prices that started shortly after the U.S. elections in November. Removing this uncertainty seemed to have triggered a move back into equities that has gained momentum ever since.
Prices are now well above both the 20 and 200-day moving averages, but we should note that there appears to be a bearish divergence forming in the 14-day RSI, as this momentum indicator has so far failed to make a new high reading as the E-mini futures make multi year highs. The next resistance level is seen at the October 2007 high of 1558.75, with support seen at the 20-day moving average, currently near the 1518.00 price level.
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