STRONG JOBS REPORT PUSHES RATES SHARPLY HIGHER -- THAT HELPS BANKS, BROKERS, AND INSURERS -- BUT HURTS UTILITIES -- RISING DOLLAR PUSHES GOLD AND OTHER COMMODITIES LOWER -- EMERGING MARKETS SLIP ON RISING DOLLAR AND PROSPECTS FOR HIGHER BOND YIELDS
SURPRISINGLY STRONG JOBS REPORT... Today's surprisingly strong jobs report took markets by surprise, but is having predictable intermaket results. First, it pushed Treasury yields sharply higher. That's based on the belief that the strong report increases the odds for a Fed rate hike in December. Chart 1 shows the 10-Year T-Note Yield jumping to a four-month high. Naturally, bond prices are falling. Rate-sensitive stock sectors also also having a predictable reaction. I've pointed out several times why rising bond yields are good for financials like banks and insurers. Both are up sharply today (as are brokers). Chart 2 shows the KBW Bank index surging this morning. As to be expected, Bond proxies like utilities are being sold heavily. Chart 3 shows the Utilities Sector SPDR (XLU) falling sharply. Dividend paying REITS are also falling, as are consumer staples.
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Chart 1
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Chart 2
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Chart 3
DOLLAR SURGES TO SEVEN-MONTH HIGH... As has been happening over the past week, rising U.S. rates are pushing the dollar higher. The green line in Chart 4 shows the Dollar Index (UUP) surging to a seven-month high as foreign currencies tumble. That's pushing gold and other commodities lower (and stocks tied to them). The rising dollar is also having a negative impact on emerging market currencies and stocks, especially those tied to commodities like Brazil and Russia. On Wednesday, I showed an index of foreign stocks backing off from chart resistance. I suggested that profit-taking there could lead to profit-taking here. That's especially true with U.S. stock indexes up against resistance at their old highs and in an overbought condition.
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Chart 4
S&P 500 SPDRS PULLS BACK FROM OVERBOUGHT CONDITION... My Wednesday message showed the S&P 500 SPDRS (SPY) up against resistance at its summer highs. It also showed the 14-day RSI line having reached its overbought barrier at 70, which increased the odds for a consolidation or pullback. Chart 5 shows the RSI starting to slip even more. That increases the odds for some weekend profit-taking. Chart support is likely near 206 and/or its rising 200-day average (red arrow). Any pullback, however, showed be viewed as a pause in a longer-range bullish trend. We'll take a more in-depth look at how things look over the weekend.
