While I don’t expect much volatility in world markets today with the absence of a liquid dollar market due to the U.S. Fourth of July holiday, none the less, I thought it may be worth looking at a couple of noteworthy charts out of Europe.
First, note that although today, July 4, U.S. markets are closed, investors and traders around the world are patiently waiting in the wings for the June jobs report to hit the tape Friday, July 5 at 8:30 a.m. ET. The June jobs report typically isn’t a super stellar one, hence any major upside surprise could well hit equities in the near-term as traders would expect a less hawkish tone out of the Fed. While the May non-farm payrolls number (month over month) came in at 175,000 jobs created, the Bloomberg consensus for June currently stands at 161,000.
Given the shortened trading session July 3, price action in U.S. equities was lackluster, albeit better bid. The action in Europe, however, was notably more exciting as shown by the daily chart of the German DAX 30 Index, below. After a four-day consolidation phase, Wednesday morning, the DAX quickly fell out of this digestion zone for an intraday re-test of the 200 day simple moving average (red line). Once U.S. markets opened for trading, European stocks quickly came off their lows and ended the day marginally lower.
None the less, the intra-day sell-off was notable, as it was accompanied by a weaker EUR/USD and surging bond yields in the European periphery countries. We are all too familiar with this tune, which may be why at the end of the day stocks rallied off the lows. Yet, I would be remiss not to at least raise a partial red flag.
Much like I am keeping a close eye on Goldman Sachs (GS) as we head into U.S. earnings season next week, in Europe I have Deutsche Bank AG (DB) on the radar, which, given a downgrade by S&P (from A-plus to A) earlier in the week, still weighs heavy on the German market. After developing a lower high in May versus the January high, the stock has traded exceedingly heavy and is in danger of falling to a lower low, versus the April lows. Such a move would also most certainly weigh on the DAX 30 index and by extension also trickle over to U.S. markets.
In summary, while I am putting a strong emphasis on family and down time on today’s national holiday, European markets are flashing a couple of mini signals that may just give us clues as to the near-term direction in U.S. markets.