Powell "put" boosts stocks after NFP smashes forecasts

Summary:

• Stocks rally strong after dovish comments from Fed chair Powell

• NFP smashes forecasts but initial moves in USD and stocks reverse

• CAD remain higher after mixed jobs data

• Oil pulls back on inventory data but still higher on the week

• UK services PMI beats; EMU inflation disappoints

There’s been a strong push higher in stocks this afternoon after Fed chair Powell made moves to soothe the markets and boost sentiment. Powell’s predecessors earned the moniker “put” after their name due to their propensity to deliver policy changes and comments that were supportive of the stock markets and today could well be seen as the birth of the Powell put. After previously seeming unperturbed by stock market declines today Powell stated that he wouldn’t hesitate to make changes to the balance sheet policy if it was causing problems, in a remark that traders took as surprisingly dovish and alluding to a possible slowing or even end to Quantitative tightening. The US500 has rallied above 2522 to trade at its highest level since the December Fed meeting and a daily close above here could set the scene for a sustained recovery.

Following yesterday’s stellar ADP figure, the bar was set pretty high for a positive surprise out of this afternoon’s NFP release, but despite this, the report managed to clear it as the official December jobs report smashed forecasts both in terms of jobs added and wage growth. The non-farm employment change rose to 312k, its highest level since last February and comfortably above the consensus forecast of 179k. In fact the reading is the second highest in almost three years and marks a very impressive recovery after a slight disappointment was seen last time out. On this front there was also good news as the prior reading for the month of November was revised higher by 21k to 176k. The initial reaction saw the USD rise along with yields while stocks fell, but these moves reversed course after Powell’s verbal intervention.

With the eyes of the trading world firmly focused on the NFP report, it is easy to overlook the Canadian equivalent which is released at the same time. The latest data showed an employment change of 9.3k which was roughly inline with forecasts of 10k and while it represents a sizable drop on the prior print of 94.1k it remains fairly solid on the face of it. Also on the positive side was a better than expected unemployment rate reading, with the figure remaining at 5.6% when the median estimate was for a tick higher to 5.7%. After a period of fairly subdued trade around the 2018 peak of 1.3661, there’s been some strong selling evident in the USDCAD pair. Since the simultaneous release of US and Canadian jobs data the market has remained near the lows which is perhaps telling as the buck is rising against most of its other peers since. Price has fallen below the 23.6% fib at 1.3454 and this now opens up the possibility of further declines with the 38.2-41.4% region from 1.3325-1.3297 a possible target for shorts.

For the second week running the EIA crude oil inventory release has shown pretty much no change, in what is a pretty remarkable occurrence given the volatile nature of this release. For the past week stockpiles rose by just 7k, following on from a drop of 46k the week before. The consensus forecast was for a drop of 2.8M and with the release being both above this and also last night’s private API number (-4.5M) the initial reaction has been a pullback in the oil markets. Looking at longer term charts, Oil is set to post a 4th consecutive daily gain even after the recent pullback following the data. Today’s high is not too far shy of the 23.6% fib of the larger decline at 58.79 and the confluence of this with prior support in late November could be seen to heighten its importance. The market has now bounced over $8 from the lows at 50.18 and this is now the main area to look to below as possible support.

UK services PMI surprised slightly to the upside in December rising more than anticipated and reaching 51.2, up from 50.4 in November. This combined with quite positive readings concerning construction and manufacturing yielded a rise in the composite gauge to 51.4 from a revised value of 50.8 matching economists’ forecasts. The details of today’s reading do not look well though. First and foremost, new work picked up only slightly from the 28-month low seen in November as respondents cited headwinds from political uncertainty and downbeat projections among clients in relation to domestic economic growth in 2019, the Markit wrote.  Price growth in the Eurozone economy slowed down sharply in December on stumbling oil prices and reached its eight-month low, according to the data released by Eurostat. Headline CPI grew 1.6% YoY, down from 1.9% YoY seen in November. Having said that, core inflation, which takes out volatile items including energy prices, stayed unchanged at 1% reflecting that domestic price pressure remain quite muted but stable. Let us remind that the ECB decided to end its bond buying programme last month but signalled that it would continue investing proceedings from maturing bonds beyond the date when the first rate hike occured.