The Institute of Supply Management's (ISM) factory index (US manufacturing data) rose to a three-month high of 50.9. Market analysts in the US see this as a positive sign towards recovery.
The data is quite supportive of a recovery and we expect the markets to have a rally on the upper band, said John Bollinger of Bollinger Capital Management, in an interview to CNBC-TV18. He added that the US had already had its share of correction and pullbacks and was now crossing the middle band, with an expectation that the rally will carry to the upper band.
Speaking on the jobs numbers which will be released at the end of this week, he said, "We had such crummy numbers and the revisions have been poor too. So investors and analysts have all scaled their expectations down. So, it is quite easy to beat expectations now."
Below is the edited transcript of his interview to CNBC-TV18.
Q: It is the first day of the second half of the year. We have had better than expected manufacturing data which is a surprise, given the weakness in manufacturing data in the first half and the dismal gross domestic product (GDP) report. What do you make of how markets will react to this data?
A: In the US markets, we have had a correction. We have had a pullback within the context of a rising market. It was pretty normal in terms of length and depth and now we are in a recovery phase.
This data that we are getting right now is quite supportive of that recovery. The ISM number especially this morning is quite supportive of that number. So in relation to the Bollinger band, we made a nice bottom at the lower band.
We have turned higher and just today we are crossing the middle band with an expectation that the rally can carry to the upper band.
Q: The markets have been overly sensitive to every piece of data coming in linking it to the potential beginning of a taper. When we saw that dismal GDP data, it seemed the markets were comforted by the thought that the taper would begin maybe not this year and next year. When we see better than expected data come in on the manufacturing fund, which is clearly been a lag for the first half, will markets will respond in an outsized fashion to that data as well brining back fears of a taper. Let us not forget we have the jobs number coming at the end of this week as well?
A: The jobs numbers are very important. But the market has learned that the jobs number is going to be modest at best. That is one of the interesting things going on in the US.
We had such crummy numbers and the revisions have been poor too. So investors and analysts have all scaled their expectations down. So, it is quite easy to beat expectations now.
The jobs number will actually be a slight positive for the market. We would like to see the market not reacting negatively if it were shortfall. The last point is the key thing because it is not the numbers themselves. It is how the market reacts to the numbers.
This week markets reacted pretty well to decent numbers. The market has the ability to resist big declines on news that is negative. That combination would suggest that it can actually make it to new highs.