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LIVE MARKETS-Bulls get leaner

LIVE MARKETS-Bulls get leaner

· 02/05/2021 11:42
LIVE MARKETS-Bulls get leaner

Major stock indexes green; small caps outperform

Materials, energy lead S&P sector gainers; tech is sole loser

STOXX 600 flat

Dollar falls; gold, oil rise

U.S. 10-year Treasury yield ~1.15%

- Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com


BULLS GET LEANER (1130 EST/1630 GMT)

The level of optimism among individual investors about the short-term direction of the U.S. stock market fell to its lowest level in 13 weeks according to latest American Association of Individual Investors Sentiment Survey (AAII).

The survey also showed a decrease in pessimism and an increase in neutral sentiment.

AAII reported that bullish sentiment, or expectations that stock prices will rise over the next six months, slipped 0.3 percentage points to 37.4%. Bullish sentiment was last lower on October 28, 2020 (35.3%). And optimism is below its historical average of 38.0% for the second consecutive week.

Bearish sentiment dipped 2.7 percentage points to 35.6%. Pessimism is above its historical average of 30.5% for the fourth consecutive week.

Neutral sentiment gained 3.0 percentage points to 27.1%. Neutral sentiment remains below its historical average of 31.5% for the 52nd time out of the past 55 weeks.

With these changes, the bull-bear spread rose to +1.8 from minus 0.6 last week nL1N2K41RD:



In this week's special question AAII asked members for their opinions about the Federal Reserve’s decision to maintain its current monetary policy.

Slightly more than half of all respondents (51%) said that they agree and that the Fed has little choice but to continue with its current policy.

This compares to 38% of respondents who said that they are concerned about the long-term consequences of this policy. Many respondents in this group also said that when rates eventually go up, it could have a "devastating impact on the economy."

(Terence Gabriel)

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JOBS REPORT DEEP DIVE: JANUARY'S BIG CHILL (1050 EST/15505 GMT)

The hotly-anticipated January employment report was largely expected to be underwhelming in the face of resurgent COVID-19 infections and a slower-than-expected vaccine rollout.

And while market participants got what they were expecting, aside from a surprise dip in unemployment, the underlying data provides little reason to celebrate.

The U.S. economy added a paltry 49,000 jobs USNFAR=ECI in the first month of 2021 according to the Labor Department, a hair below expectations. nL1N2KA34D

The relatively weak rebound is cold comfort, coming on the heels of December's revised loss of 227,000, much steeper that previously reported.

The lackluster report arrives at a time when Washington is pushing Biden's robust stimulus package toward passage while vaccines are being deployed and as the economy enters its twelfth month of pandemic-induced recession.

In that time, the U.S. economy has recovered just over half of the 22.2 million jobs lost at the onset of the health crisis.

"The weakness portrayed in today's labor report opens the door for the Biden administration to push forward with a higher spending package and provide relief for many Americans and businesses that continue to struggle with the pandemic," writes Charlie Ripley, senior investment strategist at Allianz Investment Management. "Despite the soft report, market reaction was favorable as the odds for a bigger stimulus package have only been increased."

While the unemployment rate USUNR=ECI unexpectedly dropped to 6.3% from 6.7%, the decline was partly attributable to people incorrectly classifying themselves as 'employed but absent from work.'

Additionally, long-term unemployed account for the largest slice of the unemployment duration pie, at 39.5% of the total.

And the participation rate edged down to 61.4% as workers grew increasingly discouraged over job prospects and left the labor market, which also is likely to have pushed the unemployment rate lower.

But how much is the low participation rate a product of fear?

"Many people are afraid of COVID and are not wanting to go back to some of these roles," says JJ Kinahan, chief market strategist at TD Ameritrade. "Part of the participation rate is people want to get the vaccine before they decide to get back on the horse."

Finally, average hourly earnings growth held steady at an elevated 5.4% annual rate, suggesting that lower-paying, customer-facing services jobs, which bore the brunt of lockdown-related layoffs, have yet to come back.

As we head into the spring and the summer, we'll see many of those leisure and hospitality jobs coming back but that will take some time," Kinahan adds. "My hope is when more people get the vaccine employment will return, particularly in customer-facing roles."

Investors took the employment report largely in stride and chose instead to focus on the likelihood of a robust fiscal aid package from Capitol Hill.

All three major U.S. stock indexes were modestly green.

(Stephen Culp)

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DOW INDUSTRIALS: TRIES TO SWING FOR ITS HIGHS (1005 EST/1505 GMT)

The Dow Industrial's .DJI violent swings from its January 21 high into its January 29 low now appear to have been a corrective pattern on the charts. nL1N2K91DE

Indeed, on Thursday, the blue-chip average was able to overwhelm a short-term resistance line and exceed Tuesday's high. With that thrust, the index is now challenging its 31,188.38 record-high close/31,272.22 record-intraday high:



Additional hurdles can be found at monthly log-scale resistance lines from late 2018, now around 31,500, and 1929, now around 33,000. These barriers are 0.7% to 5.5% above the record intraday high.

Of note, despite the recent weakness, the Dow is on track for a 4th straight higher monthly low. This, even though the Nasdaq Composite .IXIC nL1N2KA154, and the NYSE Composite .NYA nL1N2K218U, may have cracks under the surface. Therefore, a Dow reversal below January's trough at 29,856.30 may add to any renewed negativity.

Meanwhile, despite the Dow flirting with record highs, its monthly RSI is failing to confirm the move. Although rising, this study remains shy of its 2020 and 2019 tops, and well below its 2018 highs.

In fact, given the Dow's swings since early 2018, the oscillator has been unable to muster enough strength to end a month above the overbought threshold (70.00) for more than 2 years. Protracted stretches of monthly RSI divergence have preceded significant periods of Dow nL1N2JI1FF and S&P 500 .SPX nL1N2K7193 instability.


(Terence Gabriel)

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A (UK) DREAM OF SPRING (1004 EST/1504 GMT)

A Dream of Spring is expected to be the last novel of George R.R. Martin's epic fantasy saga which was adapted to the screen in HBO's Game of Thrones.

A lot of the action is set during a winter which lasts for years and during which an army of zombies march through the civil war-torn continent of Westeros, a fictitious land which looks very much like a map of Great Britain and Ireland turned upside down.

Granted, COVID-19 isn't on the same scale as a horde of living dead in terms of catastrophes but the UK would also be entitled to dream of spring as it battles through a most deadly winter.

And hope there is!

"Beginning with schools and non-essential shops, we expect the UK to start the stepwise reopening process by mid-March", Berenberg's team of economists said in note looking into the prospects of the UK economy going back to normal.

There's been a lot of good news lately: the lockdown is working and "based on the recent five day average, recorded infections could be at summer 2020 levels within two weeks".

That good trend comes as Britain is emerging as one of the most successful countries in vaccinating its population with hopes that 15 million people most at risk will have had a jab in the arm come mid-February.

Spring in itself should also help fight the pandemic with "the normal remission of seasonal respiratory viruses" according to the research note.

Looking further ahead, it gets even better as the vaccine rollout continues to do its thing.

"By summer, almost all of the economically significant restrictions are likely to be lifted – perhaps with some exceptions such as public events at full capacity", the Berenberg team of economists believe.

Here's Berenberg's chart showing how infections are expected to drop going forward:



(Julien Ponthus)

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WALL STREET POINTS UP WITH STIMULUS, JOBS INTERTWINED (0905 EST/1405 GMT)

S&P e-mini futures EScv1 are pointing to a higher open on Friday as Democrats pushed ahead with their plans for approving COVID-19 stimulus and data showed January jobs growth was slightly below expectations and prior month revisions were on the bleak side.

Indeed, U.S. employment growth rebounded slightly less than expected in January and job losses the prior month were deeper than initially thought, strengthening the argument for additional relief money from the government to aid the recovery from the COVID-19 pandemic. nL1N2KA34D

While rising wages and average work week indicated to Sameer Samana, senior global market strategist at Wells Fargo Investment Institute that things may not be as bad as they seem, he also pointed to a need for government support.

"Job growth slowed markedly in January, and the previous two months’ revisions were also to the downside. It is worth noting that the unemployment and underemployment rates both fell, however some of that may be due to a decrease in the participation rate," said Samana.

"These data points show that the labor market has softened in the past few months and the need for fiscal stimulus remains high."

The U.S. House of Representatives will vote on Friday on final passage of a budget resolution that would allow Democrats in Congress to approve President Joe Biden's $1.9 trillion COVID-19 relief package without Republican support, a Democratic leadership aide said. nL1N2KB170

Here is your premarket snapshot:

(Sinéad Carew)

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FOR FRIDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT - CLICK HERE: L8N2KB47I








(Terence Gabriel is a Reuters market analyst. The views expressed are his own)