Stock markets are coming off of their June highs despite interest rate cuts in Europe and China, as employment data out of the US takes most of the attention and focuses investor confidence on the downside. Financials and Industrials were the biggest losers, with the S&P 500 seeing declines of 1.2 percent in holiday-thinned trading volumes. Looking at the S&P as a whole, 8 out of the 10 industry sectors finishing lower on the week. In the Dow Jones, notable drops were seen coming from Bank of America, JP Morgan, and General Electric.
The S&P 500 closed Friday at 1355, which equates to a yearly gain of 7.7 percent with the Dow closing at 12,770 reversing gains made in the previous week. Earlier optimism with regard to the eased requirements for Spain and Italy to receive necessary bailout loans failed to generate much buying activity in stock markets this week.
This was due in part to the Independence day holiday restricting trading activity but this lack of follow through continued into the end of the week when US Non Farm Payrolls show that only 80,000 jobs were created for the month and this was not enough to bring down the elevated employment rate in the country. The US Unemployment Rate held steady at 8.2 percent in June.
Despite the holiday, investors still experienced a very active week as Central Bank responses to the economic weakness came in Europe and China, with the ECB reducing its benchmark interest rate to 0.75 percent (a record low). The ECB President made some relatively pessimistic comments following the rate cut which suggested that the rate reduction might have only a limited impact in propelling the Eurozone economy into recovery. Accommodative monetary policy measures were also enacted in China, where the PBoC lowered interest rates as a means for encouraging manufacturing productivity.
The EUR/USD is resuming its long term downtrend and prices have now broken the previous yearly lows that were seen at 1.2280. We did not see a daily close below this level, however, so there is some warning of a false break looking at the shorter term perspective. Overall, prices remain firmly entrenched in their long term down trend channel so anything resembling a significant rally is expected to meet selling pressure. Wait for some upside correction before getting into new short positions for a year end test of 1.20.
The DAX is rolling over on the shorter term time frames after breaking resistance at the previous 6410 double top. This break propelled prices to a new high at 6640 before buyers began to opt out, so this is the critical resistance area going forward. Prices are now coming into some support, as current levels are equal to the previous double top, but a daily close below 6410 will turn the focus back to a test of 6140. Expect some consolidation in this area though as prices will need to move back through moving averages in order to gain any real momentum.