The markets are reacting strongly to an upside surprise in the U.S. monthly jobs report. The jobless rate dropped to 7.5%, the lowest level since December 2008, from 7.6% in March. This metric is a highly important number the Fed has announced they are closely monitoring to determine whether to expand or contract their stimulus policies.
Equities: The JUN13 E-mini S&P 500 has broken out above 1600 and is trading up around 20 points to 1612. Technically, we believe the next major target for this market is 1640. The market rallied 110 points from late February to April. Another 110 point rally from the recent low of around 1530 brings our major technical target to 1640. This bull market has surprised many analysts who have mistakenly called for a correction even when the market was just passing through 1500! And now, with the market passing through 1600, we still believe in the bull trend, and believe a “correction” may occur once the market hits levels above 1640, and even that correction will likely not be very significant, in our opinion. The amount of liquidity the key central banks of the world are creating and unleashing unto the markets is truly huge, and this is likely a key culprit for the equity rallies we see around the world.
Bonds: The U.S. 30-year bond is down big today, almost 2 points. The jobs report came out very strong, and considering the unemployment rate ticked lower, this report is giving investors reason to believe or at least wager that the Fed’s next move could be removing versus adding stimulus. We believe the bonds below 148 (JUN13 futures) are bearish.
Currencies: The U.S. dollar has gained on the Japanese yen this morning, which makes sense as investors may start to adjust their bond holdings for higher U.S. rates, which is bullish U.S. dollar. We believe the yen will break below 100. The euro, surprisingly, is still up on the day. We believe that with a stronger U.S. and a dovish ECB, the euro could head a lot lower.
Commodities: Crude oil is on a tear today, continuing its rally from yesterday. Crude is up almost $2 to $95.73. Crude is above our key pivot level of $93, and is likely reacting to a possible demand increase due to global growth now looking more positive with the U.S. jobs number. Gold has quieted down since its rally from the 4/15 historic drop. We believe gold will stay below the key longer term resistance level of $1,550.
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