Happy jobs Friday

Sentiment is not bad for a week which confirmed that the Federal Reserve (Fed) won’t cut the interest rates anytime soon. Stocks rebounded and yields fell yesterday, the S&P500 kept floor above the 5000 psychological mark, Nasdaq 100 jumped 1.30% as the US 2-yer yield slipped below 4.90% despite data showing a bigger than expected jump in unit labour costs combined to a larger fall in productivity over the same month. Factory orders fell in April – which could’ve been good news for the Fed doves, but no – input prices rose at the highest speed since the 2022 peak in inflation. So my conclusion was that: investors just want the stocks to rally even in May, and defy the popular saying ‘sell in May and go away’.

Good news: Apple did just fine after the announcement of its most feared quarterly results yesterday, after the bell. The 10% drop in iPhone shipments to China has been keeping investors up at night regarding the Q1 results. The sales dropped 4% – very very slightly less than expected by analysts, but a 14% jump driven by App Store sales, higher-than-expected earnings, a higher dividend and a $110bn stock buyback sent the stock price 6% in the afterhours trading. The company didn’t say anything new regarding its AI efforts though, we will have to wait the June 10th to more details about AI. Pricewise, the post-earnings rally could help Apple break above its ytd descending channel top and pave the way for more gains – on hope to hear something worthy on the AI front in the next few weeks.

Jobs watch

US futures are up in the wake of better-than-expected Apple results, and ahead of today’s much-important US jobs data. The jobs data will be more important this time than in the past due to increased uncertainty regarding the future of the Fed policy. The US economy is expected to have added around 240K new nonfarm jobs in April, the average pay is expected to have grown slightly slower on a yearly basis, and the unemployment is seen steady at 3.8%. A hotter-than-expected data, especially on the wages front – should easily fuel the hawkish Fed expectations and weigh on equity and bond prices before the closing bell. A softer-than-expected set of data, on the other hand, should give some relief to the Fed doves before the week comes to an end.

We can’t predict where the market will be headed after the data, but based on the cost of ATM puts and calls expiring today, Citigroup predicts that the S&P500 could move 1.2% up or down as a reaction to the data.  

FTSE 100 is in a sweet spot

Elsewhere, the British FTSE 100 continues to perform well. The almost 2% jump in Shell following over $1bn profit beat yesterday certainly helped keeping mood in the British blue-chip index intact. They also announced a $3.5bn stock buyback. Zooming out, the FTSE 100 is up by 10% since the January dip. The UK economy doesn’t make anyone dream, and indeed the OECD cut its outlook for the UK economy and expects it to grow by a meagre 0.4% this year – just better than Germany that sits at the bottom of the range with a morose 0.2% growth. But who cares, Britain’s biggest companies bring the majority of their revenues from abroad, so all the British blue-chips need is a strong world economy. And the OECD predicts that the world economy will grow more than 3% this year – 0.2 percentage points better than their February forecast. Also, note that the reflation trade – that comes along with the expectation of looser monetary policies across the globe and that benefits to cyclical names like energy, mining companies and financials – continue to play in favour of the index. So if all goes according to plan, the FTSE 100 should do just fine in the coming months. What could go wrong? Well, inflation – inflation could go wrong and delay the reflation gains.  

In the FX

 The US dollar is under selling pressure this morning, the EURUSD is drilling above a minor Fibonacci retracement with risk of seeing gains reversed after today’s US jobs report. The USDJPY continues to retreat thanks to intervention – and the speculation regarding intervention – from the Bank of Japan (BoJ) this week, while Cable tests the 200-DMA to the upside. The common denominator for what’s next is the US jobs report. A strong report could easily reverse gains in major peers, fuel the hawkish Fed expectations and back a dollar appreciation before the weekly closing bell.