US stocks surge to new highs after mixed data

Summary:

• US jobs report beats forecasts

• ISM misses but stocks break to record highs

• USD falling lower against most peers

• UK PMI tops estimates but still below 50

The US jobs report for October has shown a better than expected reading with a positive revision also seen to the prior month. 

The data was as follows:

• Non farm employment change: +128k vs +89k exp. +180k prior - revised higher by 44k

• Average hourly earnings M/M: +0.2% vs +0.3% exp. 0.0% prior

• Average hourly earnings Y/Y: +3.0% vs +3.0% exp.

• Unemployment rate: 3.6% vs 3.6% exp. 3.5% prior 

The market reaction initially was what you’d expect from a pretty solid report with US yields, US stocks and the US dollar all moving higher and Gold tumbling in response. However, the only one of these asset classes to sustain the move was stocks as the others have since pared back somewhat. 

The last top tier economic release of the week has been something of a disappointment with the most recent manufacturing data from the US missing forecasts. The ISM reading for October came in at 48.3 but while this is a beat on the 47.8 prior it was below the 48.9 expected. The employment index rose to 47.7 (46.3 prior) and new orders also increased to 49.1 (47.3 prior) but prices paid dropped sharply to 45.5 (49.7 prior).  

US indices dipped yesterday after some negative trade remarks but they remain on course for a very solid week of gains during which they have notched up new highs in recent trade for the S&P500 and Nasdaq but the Dow Jones Industrial Average remains shy of its record peak. The US500 has made new all-time highs since the data dropped and is probing the top of a rising trendline dating back to the start of 2018.  Barring a reversal late in the day the market will also chalk up a new weekly closing high. 

After moving higher following the NFP report, the greenback has since fallen back a little and on the European close only trades higher against 2 of the 18 currencies listed on xStation - the South African Rand and the Japanses Yen. The ISM miss can account for some of the reversal and it is also worth noting that against around half of those currencies where USD is losing ground it is only by 0.3% or less but on the whole it has been a negative week for the buck which continues to pull back on longer time frames.  

For the month of October a widely followed gauge of activity on UK manufacturing has once more signalled weakness in the sector. Having said that, the manufacturing PMI reading of 49.6 was higher than both the expected reading of 48.1 with the previous of 48.3 (It was also above the latest South African equivalent ahead of tomorrow’s Rugby World Cup final).

Part of the increase can be attributed to stockpiling ahead of the previous Brexit deadline of October 31st and even with this boost, the data still marks 6 consecutive months this metric has come in below 50 and therefore in contraction territory, the longest such run since 2012. Looking at the breakdown there’s not too much to get excited about with downturns seen in output, new orders and employment. EURGBP has been in a narrow range lately as the market consolidates after a sharp drop lower. Near-term support may be found around 0.8575 with 0.8680 offering potential resistance. Could be seen as a bear flag forming