Stocks Charge Higher As US Economy Remains Resilient

WHERE WE STAND – Another day, another dose of bad news for the UK economy.

I shan’t repeat yesterday’s rant about our ever-deepening doom loop, though the jobs figures released yesterday certainly, sadly, strengthen that argument. Unemployment rose to 4.7% in the three months to May, a fresh 4-year high; earnings growth cooled to 5% YoY; while, in June, payrolls fell by just over 40k, the eighth straight monthly decline.

Funnily enough, if you increase the cost of employing staff, companies won’t be able to afford as many of those staff. Not rocket science, but clearly beyond the comprehension of folk inside HM Treasury.

Anyway, enough on that for now. Across the pond, we had the latest US retail sales figures yesterday, which once again makes me recall the old adage ‘never bet against the US consumer’.

Headline sales rose by a healthy 0.6% MoM in June, while the all-important control group metric, which feeds into the GDP figures, rose by a better than expected 0.5% MoM. Clearly, very solid figures, that again point to the underlying resilience of the US economy, despite ongoing trade uncertainty.

On top of that, yesterday also brought much better than expected jobless claims stats, with initial claims falling to 221k last week, the lowest level since April, in a week that coincides with the survey period for the July jobs report. Continuing claims also beat expectations, as did the Philly Fed’s manufacturing survey at 15.9, topping the forecast range, and touching its highest level since February.

All that helps to reinforce the bull case for equities, with this solid underlying economic momentum likely to see earnings growth remain healthy, and further progress on the trade/tariff front also helping things along nicely. Major indices ended Thursday in the green, with the S&P 500 and Nasdaq 100 both notching new records, as the ‘path of least resistance’ continues to lead to the upside, and dips remain buying opportunities.

Meanwhile, it was a case of ‘what might’ve been’ for other assets yesterday, on the whole. Treasuries lingered around recent wides, but the 30-year yield couldn’t break above yesterday’s 5.07% highs; the dollar lingered around recent highs, but the DXY remained capped by the 50-day moving average; and gold had a brief foray below its own 50-day, before paring losses as trade went on.

On the whole, my overall biases remain unchanged – dip demand will probably emerge at the long-end of the curve around these levels, fading the dollar rally here feels logical as monetary policy independence continues to be eroded, while gold stands to benefit as reserve allocators continue to rotate out of the greenback.

LOOK AHEAD – It’s finally Friday, and almost time for a cold beverage or three to see in the weekend.

A light docket awaits, featuring just the latest US consumer sentiment figure from the University of Michigan, plus last month’s stateside building permits and housing starts stats. None of that lot, frankly, is likely to be especially market-moving.

Besides that, it’s worth me throwing in my usual reminder about the potential for weekend gapping risk, particularly with Japan holding upper house elections this weekend. We can finish with some good news, though, as the FOMC enter their pre-meeting ‘blackout’ period at close of play today – hallelujah!