Equities Soften As Better US Jobs Data Sparks Fresh Dollar Strength

We’re seeing a mixed start to the week for global equities markets with many commencing the final month of the year under pressure. The key driver behind the under-performance we’re seeing in some markets is the renewed strength in the US Dollar on the back of Friday’s jobs data. With unexpected growth seen in both wages and earnings, USD has been well-bid again. The key focus for markets now will be assessing further incoming US data ahead of the December FOMC meeting.  

While a smaller .5% hike is still seen as the base case scenario for December, expectations for a potential pause in Q1 2023 are now unwinding. US markets have been the most impacted by the shift in USD sentiment this week. Looking ahead this week, US PPI data on Friday will now be closely watched, particularly given the strength we saw in yesterday’s services PMI. Strength in Friday’s data will likely drive USD further higher near-term, leading to weaker performance in stocks.

However, there are some positive highlights to note including a further easing of some covid restrictions in China. As of today, citizens are no longer required to have test results in order to enter offices and other public buildings such as supermarkets. While there is still some way to go, and many restrictions remain, there is a growing sense that China is nearing the end of its zero covid policy, which would be strongly welcomed by markets.

Technical Views

DAX

The rally in the DAX has stalled ahead of the 14703.98 resistance for now. With momentum studies having dipped here, further consolidation is likely near-term. However, while price holds above the 14180.79 level, the focus is on a further push higher and a break of the 14703.97 level near-term.

S&P 500

For now, the market remains capped by the bear channel top. Price has recently been moving higher within a well defined bull channel off the YTD lows. While price holds above the 3910 level, the focus is on a continued push higher and an eventual break above the 4153.50 level targeting 4305 next.

FTSE

The rally in the FTSE has seen the market breaking through several key resistance level in recent weeks. Price is currently stalled around the 7575.8 level, attempting to break above the bear channel top which has framed the sideways action we’ve seen over the year. Momentum studies are slipping here slightly, highlighting risks of a correction lower. However, while price holds above the 7362.6 level, focus is on a further push higher.

NIKKEI

The recent rally in the Nikkei has stalled into a test of the 28356.6 level for now. Momentum studies have softened, in line with the correction lower we’ve seen from the level. However, while price holds above the 27422.9 level, the focus is on a continuation higher and a break of the current resistance.