Cyclical stocks shrug off weak data

US employment barely increased in January

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Markets shrugged off the latest weak economic data on Friday, with the cyclical sectors of the S&P 500 rising further, albeit by a little less than the defensive ones. Nevertheless, while defensive stocks are still lower than they were at the start of the year, cyclical stocks are now at a fresh record high.

Macro

The non-farm payrolls data showed employment rose by just 49,000 in January. That was a better result than in Canada, where it dropped back by over 200,000.

The breakdown was more positive, as professional services employment rose strongly, whereas the weakness came in those categories suffering most from pandemic concerns.

The US trade data export growth picked up, but remains negative, while import growth slowed, but remains strong.

Japan’s leading indicator has turned, but still points to healthy growth.

Markets

The CFC positioning data showed traders cut their short position in the USD last week as the dollar rose.

A lot of that positioning move was due to a drop in euro longs.

China’s credit impulse has turned, which often coincides with a strengthening USD (NEER = nominal effective exchange rate).

It wasn’t just cyclical stocks that did well last week, many commodities also rose, especially those related to energy.

There could be room for further gains, given the GCSI energy index is still below its pre-virus level, whereas the non-energy index is much higher.

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