Indices across Europe recovered most of their earlier 1% losses to trade into positive territory towards the close after fears over Friday’s jobs data were eased after US private employers added more jobs than expected in July and the services sector also expanded at a faster rate than predicted.
The last 24 hours has mostly been about investors looking for excuses to cash in their healthy gains after strong equity rallies. Yesterday’s data out of the US provided the perfect excuse for them to do just that and naturally with the all important nonfarm payrolls only days away now, some investors are naturally happy to take some risk off the table and lock in their profits in case there is a bad jobs number.
We have seen investors reduce their holdings in the banks after a strong run in the sector over the last month, whilst the US Dollar Index has posted some gains for the first time in over a week. These two aspects tell the tale of a move to risk aversion, but in truth with volumes very low, one might expect that today’s moves are simple profit taking as we head into an intensive economic data calendar of events including rate decisions for the EU and UK tomorrow and Friday’s US labour data.
Afternoon turnaround
However, in the afternoon session we did start to see some investors come back to the market, bulled by better than expected ADP employment data out of the US which has raised optimism that Fridays’ US labour data could outperform and most of the buys we have seen has been from investors betting just that.
Technical Levels
In financial spread trading, the FTSE has traded through resistance levels at 5400 but the Index needs to close above this level for an attack at its two and a half month highs of 5435. Investors have been happy to cash in their profits around these levels before and interestingly enough, we saw investors do this as soon as the 5400 level was breached this afternoon. This resistance needs to be taken out and a close above 5435 could convince that the bulls have the momentum.
The above comments from Joshua Raymond, Market Strategist, City Index.
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