Markets saw a lift in sentiment overnight as European Finance Ministers were able to reach agreements relating to the size of the EFSF (which was increased to 750 billion Euros) and the release of the next loan tranche for Greece (valued at 8 billion Euros). Adding to the optimism in Europe is the expectation that retail sales in Germany will show strength when compared to the September figures. This would match the positive surprise that was seen in the record high Black Friday retail sales in the US, so this could bring some lift back to equity markets and high yielding currencies if this come to fruition.
With all of the headlines currently centered on sales figures for the upcoming holiday season, it will not be surprising if macro data creates more volatility than what has been seen in recent weeks. Today, the data docket out of the US will be heavy, with the ADP employment report, Chicago PMI, Pending Home Sales, MBA Mortgage Applications and the Fed’s Beige Book. The ADP figure is likely to get the most attention, as this is generally viewed as a precursor for the Non Farm Payrolls figure (which will be released on Friday). Any strength seen in the labor market will be viewed as supportive for the consumer spending data that will be key in to coming weeks.
Earnings releases will be seen from some major retailers but but data is less likely to influence price activity, as it will be viewed as a lagging indicator heading into the end of the fourth quarter. Individual equities did get some attention yesterday, however, after Standard and Poor’s downgraded the credit rating of Goldman Sachs, Wells Fargo, JP Morgan and Bank of America, and all of these stocks met with selling pressure during the aftermarket session. The effects of these downward moves on the broader S&P 500, however, were limited as the rally in crude oil helped push the energy companies higher.
In Europe, some significant data will also be released, with German Retail Sales and Jobs figures, French PPI, and the Eurozone Unemployment rate and CPI data all scheduled for release. Earnings reports, however, will come mostly from second tier companies. Most of the attention and volatility should be seen during the US session, however, as markets interpret the implications of the ADP payrolls figures.
The USD/JPY continues to push higher with prices now meeting resistance into 78.30. Looking at Fib support for the latest rally, we can see that the 38.2% level matches nicely with resistance turned support, so short term bulls can get long in this area, with stops below the 100 and 200 period EMAs. Any drop through there would turn the short term view back to bearish, as this is also the 61.8% Fib support level as well. A break of 78.30 targets 79.
The S&P 500 continues its rally off of important long term Fib support and we are coming into some important psychological resistance levels that could send the index higher if broken. The range we are currently watching is centered between 1200 and 1145 and an upside break will turn the short term bias back to bullish. Indicator readings, however, are ready to cross back into negative territory, so any failures here will target the range lows.