Unlike yesterday, US stocks have dragged the rest of the major markets higher today. Powell has discussed faster tapering, getting the US back on a sustainable fiscal path, and that we can expect higher inflation for longer. I am crossing my fingers that we get some decent range expansions tomorrow and a directional trade for trend followers.
The US dollar has retraced and bounced off most of yesterday’s move and the lows seen during Fed Chair Powell’s first day of testimony. These uncertain times are causing all markets to gyrate around key levels with the $96 level currently a significant pivot for the dollar. $95.50 is the first level of support and yesterday’s high is first significant resistance. Traders will be watching to see which of these levels gets tested and possibly rejected next.
According to today’s ADP National Employment Report, private-sector jobs grew by 534,000 in November, beating market expectations. Large companies added the most jobs with 277,000. While jobs in small businesses increased by 115,000 and in medium businesses, 142,000 jobs were added. More than 424,000 jobs were created in the service sector, primarily in leisure and hospitality, professional and business fields. Considering that the service sector was the hardest hit because of the pandemic when the globe shut down, this number is significant. In the event of a similar situation, these jobs will likely be the first to disappear. Janet Yellen, United States Treasury Secretary, cited the positive impact of the CBO report on the Build Back Better bill and asserted that the plan would increase employment in the country.
During the second day of testimony to the US House of Representatives Committee on Financial Services, Fed Chair Powell noted that inflation is "clearly" connected with Coronavirus pandemic-related factors and that most estimates predict it will decline in the second half of 2022. The previous predictions for demand had underestimated the supply side issues, he said, adding that soaring demand can be ascribed to both fiscal policy as well as a "quickly rebounding economy." The markets flip-flopped on the remarks and then reversed again when Jerome Powell said the "risk of persistently high inflation has clearly increased".
The S&P500 is holding on to the dynamic support of the daily 50 EMA which has been a key level for the ‘Buy the dip’ traders during 2021. If we get a close below that level, I am expecting the move towards the daily 200 EMA to begin.
I am also watching the TLT for signs of an acceleration higher as that would signal that investors are moving out of risky equities and into government-backed assets. However, if we don’t get a resolution to the debt ceiling before Friday, TLT could be on the back foot. So, this is more of a confluence indicator than something to trade.
The US Energy Information Administration reported today that the US commercial crude oil stockpiles decreased by 910,000 barrels last week, to 433.1 million barrels. The draw on supplies is usually a sign of demand but clearly, the oil traders are expecting to see lower prices post the OPEC+ meeting conclusion tomorrow as Brent could not hold above the daily 200 EMA today. The CCI indicator confirms that the path of least resistance is to the downside.
A report published by the Institute for Supply Management showed manufacturing activity in the United States increased in November compared to October, with the key ISM index reaching 61.1 points. In November, manufacturing inventories increased, prices also rose, and exports and imports also grew. The US manufacturing is not out of the woods yet though as according to IHS Markit, manufacturing activity growth in the United States slowed in November, with the Purchasing Managers Index (PMI) standing at 58.3. It's the lowest reading since December 2020 and represents a decrease of 0.1% point over the previous month.