(News Bulletin 247) – The ISM services index, which emerged sharply up on Monday, resonated with the latest federal employment report, like so many signs of chronic overheating in the American economy, major points of attention for the Fed in the construction of its monetary policy for the coming months. The challenge, beyond the shape of the yield curve, which should gradually flatten, is that of identifying, at this difficult stage, a “terminal rate”.
The health services barometer index across the Atlantic, as defined by the ISM (Institute for Supply Management) jumped from 54.4 to 56.5, beating the target by a wide margin. This robustness of this part of the American economy comes to shower the hopes of a more accommodating Fed, after the announcement on Friday of job creations which exceeded the projections of economists. It is in the context that the Nasdaq Composite index started the week with a drop of 1.93% to 11,239 points.
As a reminder concerning employment, if the unemployment rate came out on Friday at a stable level, at 3.7% of the active population, the number of job creations in the private sector (excluding agriculture) remained high, at 263 000 new units, well above target; and above all, the dynamics of wages (+0.6% on a monthly basis) shows no signs of easing.
Overall, “the markets are counting on an early inflection by the Fed,” an option still deemed improbable by Vincent Manuel, Chief Investment Officer at Indosuez Wealth Management, who favors “the hypothesis of slower and less significant rate increases, without inflection before the second half even if the Fed approaches the final rate”.
Note on the macroeconomic side on Tuesday, a weaker than expected widening of the deficit (structural, remember) of the US trade balance, to -78.2 billion dollars in October.
KEY GRAPHIC ELEMENTS
On Thursday the Nasdaq Composite retraced higher the full extent of a consolidation flag between roughly 11,000 and 11,500 points, in strong volumes, with an open on session lows, and a close exactly on the high points. If this does not bode well for a final exit from the top, a little air has certainly been found. But the amplitude of a bypass flag has been clearly defined. It is within this flag that the oscillations will continue.
FORECAST
Considering the key chart factors we have mentioned, our opinion is negative on the Nasdaq Composite index in the short term.
This bearish scenario is valid as long as the Nasdaq Composite index is trading below the resistance at 11460.00 points.
CHART IN DAILY DATA
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