Börse & Märkte

S&P500 Above 1700 For First Time Ever In Its History

Equities in Europe post tentative gains Friday, easing back a tad after this week’s advance across regional indices.  Wealth of good news out there in the financial world assisting the rally in equity markets and US stocks are standout winners here – S&P500 moved over the 1700 mark for the first time in its history, an unprecedented move which will go down in the history books. YTD, the DJIA and S&P500 are up 20% each.

 

The drivers? Of course, solid 2Q earnings season in the US and a torrent of robust economic data fuels the rise in US equities but the dominate driver is undoubtedly the calm over any immediate withdrawal of easy Fed money which provides liquidity junkie investors with more time to enjoy the current market environment.

 

Fed saying they are not ready to unwind just yet but have put their intentions out there so the markets’ are aware that tapering is inevitable. Miscommunication by the Fed got the markets all nervy about tapering as Fed was very vague about how and when they will start to the process, prompting a big sell-off across rick assets back in May but since Fed head Bernanke’s testimony to Congress, Fed had to implement a form of damage control in order to help manage investor expectations and tame the volatility in the global market place. In the Fed’s message, two dominating points have been delivered to markets; commitment to ultra low rates for extended period, QE or no QE; tapering dependent on performance of economy with emphasis on labour market recovery.

 

The unemployment rate at 7.6% [before today’s payrolls] and Fed looking for the rate to move to 6.5% before tapering process starts and we all know that’s not going to be any time soon. We need to see NFP reports showing over 200k for the remainder of 2013 before tapering can kick off by early 2014 as unemployment rate will have moved below the 7% mark by then. Today can be the day in which we can see the first of a run in job reports showing over 200k jobs created by the US economy, finally moving past these “goldilocks” reports – after yesterday’s strong ISM manufacturing report in which the employment component rose sharply, jobless claims data and the smashing ADP report out on Wednesday, there’s growing optimism we will get a number above 200k.

 

The big question now is how will the market react to a stellar jobs report? USD will be standout winner as this will hasten the Fed’s resolve to taper sooner rather than later but stock investors could play this two ways; either cheer at the recovery in the jobs market or get spooked that tapering will start as early as September. Judging by reaction to data by markets, good news is good news as the focus is now on fundamentals. Gold takes a smacking on the prospects of a strong jobs number spurring the Fed into tapering action and neither do US bonds – Treasury yields could break above 3%, a level which will make investors uncomfortable.

 

On Europe briefly, sterling was boosted by UK construction PMIs blowing the doors off – in at 57.4 in July from 51.9 from the prior month, fuelling hopes that the UK’s recovery is now firmly on track. Nationwide in the UK adds to the optimism by saying that house prices in the country advanced to three-year highs in July, the strongest rate of annual price growth since August 2010. Other than the US payrolls report, we have US industrial new orders, personal income and spending as well as the PCE deflator, all due this afternoon.