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Fading Middle East tensions and a US-China trade deal so close you can smell it helped lift the three major US indices to record highs yesterday.

The Dow rallied 200pts and got within 12pts of breaking the 29k level. Overnight futures prices have ramped higher, taking the Dow through this level and indicating it could open around 29,040 when the cash equity market opens. The S&P 500 ran into a brick wall at 3275 but futures imply a breach today on the open to 3283. This steamroller is not one to get in front off to pick up pennies.

Apple shares smashed new all-time highs to hit $310 with data showing an 18% surge in China sales. The stock has already rerated to trade about 25x forward – much upside left? Needs solid EPS growth which I think we will get in Q4. We’ve already had decent indications from the Services side of the business indicating that its pivot to being more of a Services business is in full swing. App store customers spent a record $1.42bn between Christmas and New Year, 16% up on last year, the company has said. Management also revealed that Apple News is drawing over 100m monthly active users across the US, UK, Canada and Australia. This is all to the good – Services margins are about double that for the rest of the business and will mean re-rating of the stock going forward. 

Asia has been broadly higher and European equity markets are on a firm footing again.

The DAX is looking to open higher, through 13,520 adding to yesterday’s 1.3% gain. A tilt at the all-time high and a breach of 13,600 is on the cards if sentiment holds.

Today’s nonfarm payrolls are the main economic event. Markets anticipate payrolls +162k, with average earnings +0.2% and unemployment at 3.5%.

Remember last month a blowout jobs number sent equities higher along with the US dollar and Treasury yields, as it suggested the US economy was doing better than many corners of the market feared. The headline print was miles ahead of expectations, coming in at 266k vs 180k expected. Unemployment at 3.5% was exceptionally strong, too.  September was revised up 13k to 193k, while October was also revised higher by 28k to 156k. Private payrolls also very strong at 254k. Should we worry about the Fed pivoting again? I don’t think so and the market clearly thinks the same.

The Fed can stand this sort of hot reading for a while yet – jobs growth is averaging only 180k this year vs 223k last year. And whatever privately you might think about whether the Fed should be maintaining an easing bias in this environment, it’s made it very clear that it will take a sustained and pronounced rise in inflation to warrant a hike.

The Fed has made it clear it will let inflation and the economy run hot, so today’s numbers can’t really miss as far as equities are concerned. A weak reading only raises prospect of quicker policy response and may lead to the USD handing back some of the recent gains. 

Oil remains weaker having taken a decisive step under $60 to trade through the bottom of the rising channel it’s tracked since Oct. Support is clear at $59, where our lower trend line meets the 50-day moving average, and this may be where longs stage their defence. 

Gold likewise seems to have based for the time being with support holding around $1545. In early European trade we saw a push back to $1550. Real yields are not supportive of pricing as they creep back higher.

In FX, the dollar is still bid. USDJPY is facing double resistance. Having cleared the 200-day and other MAs bulls are looking to break the trend line drawn from the falling highs since the swing high of Oct 2018, at 109.50. Then there is long term 61% Fib level to cross at 109.60 where we have seen rallies hit a wall several times lately. This area is offering a decent amount of resistance as a result but if taken out could see a sharp spike higher.
EURUSD was little changed at 1.11090. Yesterday’s doji candle looks more like indecision than reversal but having touched on the 50-day moving average and rejected it, bulls may sniff something. However the momentum remains with the bears.

GBPUSD has come off its lows to trade at 1.3080, following Mark Carney’s outgoing speech which the market decided was more dovish than before. He’s on the way out anyway, two doves are already voting for cuts – the BoE will cut this year. What Carney says is no longer relevant.

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