US job figures brought cheer but watch out for rise in interest rates

US job figures brought cheer but watch out for rise in interest rates

9. elokuuta 2021 - Carlsquare

Stock trading on Friday 6 August was dominated by better-than-expected US jobs data. Stock markets rose, as did interest rates and the USD dragging down commodities, especially gold. The flip side could be that the inflation rhetoric is picking up again. However, so far this is just something to keep a close eye on.

943,000 jobs were created in the US in July, which is an impressive figure. It was also slightly higher than the expected 925,000 jobs.

The unemployment rate also improved to 5.4 percent. On the negative side, momentum is starting to wane and there is still a gap to the pre-pandemic level of 3.4 percent.

In September, many support programs in the US will dry out (if they are not extended again). It will be interesting to see if this can further improve the unemployment rate. This is because there is still a huge shortage of workers in the service sector. People in the US are clearly choosing to stay at home on benefits rather than take low-paying jobs at Wal-Mart, for example.

As can be seen in the picture below, S&P500 continues to climb steadily in an upwards sloping trend. During Friday’s trading a new all-time-high was set.

S&P500 index from 25 January to 8 August 2021

But when is a good time to get in for those who believe in further upside? Looking at the 2-hour candle chart below, dips towards the MA200 has so far been good buying opportunities.

S&P500 index from 12 May to 8 August 2021

S&P500 Index, five-year graph

Note: Past performance is not a reliable indicator of future results.

It is important to keep an eye on interest rates now. As shown in the chart below, the 10-year yield in the US closed above the falling trend during Friday’s trading. Rising interest rates should give new energy to the camp that worries about rising inflation and less government support.

US 10-year Treasury yields from 25 January to 8 August 2021

On the long-term chart, however, Friday´s rise was no more than a blip. In the weekly chart, the US 10-year Treasury is supported by the MA50 and generates a sell signal in the MACD. See picture below.

US 10-year Treasury yields, five-year graph from September 2016 to August 2021

Note: Past performance is not a reliable indicator of future results.

Over the summer, the USD has strengthened against the euro. This along with the stock market, which is of course a sign of underlying strength. As can be seen in the graph below, EUR/USD has yet some points to fall before the level in March/April 2021 is reached:

EUR/USD, graph from 30 November 2020 to 8 August 2021

In the five-year weekly graph below, one can see how the currency pair is trading at support made up by a slightly upwards sloping trend line. On the other hand, MACD has generated a sell-signal. The upcoming trading days will be interesting.

EUR/USD, five-year graph

Note: Past performance is not a reliable indicator of future results.

With the strong USD, gold fell sharply on Friday and is now back to previous support levels. Keep an eye on the USD for hints on where the gold price is going.

Gold price from 30 November 2020 to 8 August 2021

Gold price, five-year graph

Note: Past performance is not a reliable indicator of future results.

On the other hand, Ethereum price rises sharply (even against the USD). As can be seen in the graph below, Ethereum is at the time of writing testing Fibonacci 50:

Ethereum price graph from 8 February to 8 August 2021

Ethereum, graph from 4 November 2018 to 8 August 2021

Note: Past performance is not a reliable indicator of future results.

Very strong Q2 2021 reporting season                                                                                                

Unsurprisingly, the reporting season for the second quarter of 2021 has been strong, especially in the US. A key explanation is that the comparison is made with the second quarter of 2020, which was marked by shutdowns following the Covid. -19 outbreak in March 2020.  That said, 87 percent both better than expected earnings and higher than expected revenues for the companies included in the S&P500 index compared to forecast is an extremely strong outcome. See graph below showing the outcome by sector, with the best performing sectors being Health Care, followed by Technology and Financials.

Analysts have revised up their earnings forecasts by 3.6 percent for Q3 2021. Since June 30, 2021, the S&P500 index has risen by 3.2 percent. Compared to March 2020 at the outbreak of the Covid pandemic, companies improved profits have been more than well discounted by the stock market. The P/E-ratio for the S&P500 index now stands at 21.2 as of 30 July 2021, which is about 17% higher than the average of the past five years (Source: Earnings Insight).

Microsoft belonged to the group that beat the estimates. Now the share is trying to set a new all-time-high. Note the falling MACD. The question is then if it can be done this time or if a setback is needed to gain new energy.

Microsoft share price graph from 30 December 2020 to 6 August 2021

Microsoft, five-year weekly share price graph

Note: Past performance is not a reliable indicator of future results.

Earnings for Q2 2021 have not been as good for OMX30 companies as for S&P500 companies. Only 61 percent of Swedish large cap companies’ results have surprised positively, while 79 percent of revenues have exceeded analysts’ forecasts. By far the best sector on the Stockholm Stock Exchange was financials, where all four banks surprised the stock market positively with their Q2 2021 results.

As far as the international business cycle is concerned, the large Swedish companies, often with 90-95 percent of their sales coming from exports and with a good geographical spread between regions, are a very good indicator.

Overall, Swedish engineering companies’ reports for the second quarter of 2021 were about as strong as analysts had anticipated. Order intake generally increased more than revenue, indicating continued growth in the second half of 2021. In terms of revenue, engineering companies have not yet caught up with the levels seen in the first half of 2019. This is explained by negative currency translation effects from a stronger Swedish krona and the fact that Volvo, despite a strong uptick, is below 2019 levels. But the OMX30 index is up 27 percent so far this year, compared with 18 percent for the S&P500 index. So, expectations have been and still are stronger for the performance of Swedish companies compared to the US.

The Volvo Group reported revenue growth of 43 percent in Q2 2021 adjusted for the divestment of UD Trucks. Demand in the international freight market was good, resulting in an improved service business and a good order intake (+143% in Q2 2021 compared to Q2 2020). Volvo´s challenge is to keep up with the pace of deliveries, where there have been disruptions. Furthermore, Volvo has seen a decline in the Chinese Civil construction market, which has however been offset by an improvement in Europe and North America.

The stock market traded Volvo shares down 2.5 percent on the day of the report, as even higher numbers had been expected on the truck side. As shown in the graph below, the stock is now testing MA200, which is trading to the psychologically important 200 SEK-level

Volvo share price graph from 30 December 2020 to 6 August 2021

In case of a break, Volvo got support around 195-196 SEK made up by MA50 in the weekly graph below. However, note how MACD is falling in both graphs:

Volvo share price, five-year weekly graph

Note: Past performance is not a reliable indicator of future results.

Sandvik reported a 43 percent increase in order intake and 22 percent in revenues in Q2 2021, with arrows pointing upwards for all customer groups in Europe and North America and most in Asia as well, with passenger cars and energy being the only exceptions. Broken down by business area, the Mining and Rock solutions division continues to perform very strong strongly, with delivery levels now well above those of the Covid pandemic outbreak in March 2020. Manufacturing and Machining Solutions, focusing on engineering customers, also saw strong growth in order intake and revenues in Q2 2021 versus Q2 2020, by 44% and 33% respectively.

Skanska, which was one of the large cap stocks where the stock market reacted positively to the Q2 2021 results, is also worth mentioning. Order intake in the construction business increased by 16 percent in the second quarter, while operating profit improved by 25 percent. The company noted bottlenecks due to shortage of materials, which has led to price increases for inputs. The 12-month market outlook for Skanska’s operations is, with few exceptions, unchanged from the previous year though.

Indices in Europe

Swedish OMXS30 index has been trading sideways since mid-July. Vacations are getting to an end and perhaps an increased activity will open for a clearer direction. The index is trading above EMA9 as well as MA20. As can be seen in the graph below, MA50 has historically been a good level to enter.

OMXS30 price graph from 30 December 2020 to 6 August 2021

Below is the five-year weekly graph. In this picture, the sharp rise over time is more visible. But the two last weeks has resulted in two dojis as MACD is falling. This indicating that uncertainty has arisen:

OMXS30, five-year weekly price graph

Note: Past performance is not a reliable indicator of future results.

In Germany, the DAX inde is trying to break up above the 15 800-level. The two last times (in June and July) it ended up in fails. However, this time MACD is on the rise:

DAX price graph from 30 December 2020 to 6 August 2021

On the other hand, in the five-year weekly graph below one can see how momentum is fading out with EMA9 that is flattening and MACD that is falling.

DAX index, five-year weekly price graph

Note: Past performance is not a reliable indicator of future results.

Full name for abbreviations used in previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MACD: Moving average convergence divergence

Important notice

This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the trading products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms. The base prospectus and final terms constitute the solely binding sales documents for the securities and are available under the product links. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future performance.

30.9.2022 14:50:48


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