Stocks Plunge; Weak Jobs Data Worsens Concerns of Economic Slowdown
U.S. equity market plunged sharply lower into the close as
disappointing U.S. jobs data as reported by the ADP Corp. encouraged investors
to liquidate positions well ahead of Fridayâ€™s U.S. jobs data. Investors are now
becoming concerned that calls for a gloomy outlook for the economy is going to
become a self-fulfilling prophesy.
Consumers arenâ€™t spending and now it appears that businesses
arenâ€™t hiring. This is probably one of the worst things that can happen to the
Keynesian Theory following Obama stimulation. His plan to revive the economy is
to add stimulus in an effort to fuel consumer demand. Increased consumer demand
is then expected to encourage business to hire more employees. Once the economy
is back on solid footing, the administration will then recover most of the
stimulus money through increased taxes.
While the rest of the world is slashing spending, our
administration is looking at pushing through more stimuli. Something has to
give and I believe that investors have finally awoken to the thought that the
deficit is too large and is going to be a problem going forward.
Although concerns about European bank funding were cleared
up on Wednesday, investors should still be concerned about sovereign debt
issues. For the next two days, debt issues and global growth should be on the
minds of traders along with the all-important U.S. jobs data report. Some
analysts still claim that this report lags the economy.This may be true but investors are going to
monitor this report very closely for direction regardless of what analysts say.
Once again Iâ€™d like to emphasize that the best investors
watch the Treasury markets for direction. On Wednesday, yields continued to
drop, signaling that perhaps the worst is expected to come in the higher risk
asset markets. The charts indicate demand for fixed income instruments is
continuing to grow with plenty of room to the upside for price expansion. This
continued movement into safer assets suggests that equity markets are getting
ready to plunge.
The September Euro rallied sharply higher on Wednesday after
the European Central Bank reported that demand for three-month loans by member
banks was weaker-than-expected.This
news came as relief for traders who were looking for European banks to be a
little more active at the lending window given the bleak outlook for the Euro
Zone economy. The news tempered concerns that the European banking sector was
weakening and would need to continue to borrow from the ECB to shore up
Technically, the Euro found support at a key 50% level at
1.2171. The rally from this level gives bullish traders a ray of hope that the
market will form a secondary higher bottom to help drive it through the most
recent high at 1.2367.Bearish traders
point out that the short traders still control the Euro based on the recent
Commitment of Traders Report. Some feel that lower prices are coming and that
todayâ€™s rally was just a technical glitch in the down trend. The chart
indicates that a failure to hold 1.2171 should trigger a fast move to 1.2102.
Gains in the Euro may have been limited on rumors that
Moodyâ€™s rating service was getting ready to downgrade Spainâ€™s sovereign debt.
Some believe that this may already be priced into the market because Fitch and
the S&P Corp. had already downgraded Spanish bonds weeks earlier.
The U.S. Dollar was mixed against most major currencies on
Wednesday. The weak equity markets helped drive up demand for safety while
pressuring the commodity-linked currencies.The September Australian Dollar broke through 50% support at .8469.
Downside momentum indicates that a test of .8378 is likely over the
near-term.The September New Zealand
Dollar completed its 50% retracement to .6865, but the inability to trigger a
technical bounce at this level indicates that a break to .6896 is likely. The September
Canadian Dollar broke sharply lower after an early attempt to rally it failed. Downside
momentum indicates a move to the early June main bottom at .9357 should be
expected over the short-term.
Weak crude oil and equity markets weighed heavily on the
Canadian Dollar. Concerns are being raised about Canadaâ€™s ability to grow its
economy if crude oil continues to weaken. Traders are now beginning to price in
the possibility that the Bank of Canada will leave interest rates unchanged at
its next meeting.
The big surprise of the day was the June ADP Employment
Report. Early guesses were pegged at the creation of anywhere from 23,000 to
100,000 jobs or a consensus of 60,000.The actual figure of 13,000 jobs created helped the Dollar to strengthen
against all Forex markets except the Japanese Yen and Euro.
The lack of interest in the bearish ADP Report is a sign
that traders are more focused on this Fridayâ€™s U.S. Non-Farm Payrolls Report.
Economists are predicting a loss of about 130,000 jobs in June. This figure includes
about 250,000 temporary jobs.
Based on the weak close in the U.S. equity markets, it
appears that the bears are in control. This also means that the Dollar is
likely to be underpinned by demand for less risky assets
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Mon 9 July 2018 AA 12:00 EZ- Draghi EU Parliament Testimony Tue 10 July 2018 AA 08:30 GB- Ind/Prod Output, Trade AA 09:00 DE- ZEW Survey Wed 11 July 2018 A 12:30 US- PPI A 14:00 CA- Bank Of Canada Decision A 14:30 US- EIA Crude Thu 12 July 2018 AA 12:30 US- CPI Fri 13 July 2018 A 14:00 US- Prelim University of Michigan
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