US Open: indices upbeat despite weaker NFP

• Employment growth slowed in December
• Market sentiment still very high
• US500 could see another record close today

The major event of Friday was the NFP reading. The report showed a deceleration of employment growth to 145k in December from 256k in November (revised downwards by 10k). Private jobs growth was weakest since July and 4^th weakest last year but that’s not that surprising after a standout November report. 3-months average (+182k) was still 4^th best in 2019 and in line with a very solid labour market.   

Declining wage growth could be a concern but for indices it’s also a promise of more supportive Fed policies. Source: Macrobond, XTB Research

Declining wage growth could be a bigger concern. Expected at 3.1% it dipped to 2.9% y/y, showing a continuation of negative trend, this time augmented by production workers. If this reflects more cautious approach from the business it could spell a lasting slowdown. However, it also leaves room for the Fed to keep supporting the economy and that’s been the prime argument for the markets. Little wonder that a reaction to the report was very much muted.  

The first support line is at 3264 points. Source: xStation5

US500 is over 100 points up from the post-Iranian attack lows and any selling pressure at the open was very short lived. In any case, a support created by a previous all-time high of 3263.5 points is very close. Market focus is drifting away from the Middle East and to the next week when the PhaseOne trade deal is about to be signed but also to the start of the earnings season.

One would think that with such a rally, sentiment would be sky high. Our contrarian index is indeed the highest since June 2018 but still not even close to highs from January 2018. One of the reasons is Bull/Bear ratio that moved back nearly to balance impacted by the Middle East tensions (the survey is updated weekly on Thursdays). Source: Bloomberg, XTB Research