Our market should start higher today, but watch for the sell off in gold shares to emerge after the sharp 4% plunge Friday in the world price in New York.
In fact commodities led by gold could be in for some volatile trading days from now on as investors in the US push the greenback higher in expectation of a rate rise from the Fed in 2010.
Trading around the middle of next week will be nervy ahead of the Fed’s post meeting statement which will be watched more closely for clues of a rate rise’s timing in the wake of the surprisingly good jobs report from last month.
Just 11,000 jobs were lost, more part time jobs were reported, hours and wages picked up and the unemployment rate fell from 10.2% to 10%.
Wall Street rose strongly, then fell in the wake of the rebound in the value of the US dollar which had strong gains against all major currencies, in particular the yen and the euro.
After the close of business in the US, regulators closed another six banks to bring the number of failures so far this year to 130.
Japanese shares soared last week as the government spoke of a new stimulus package (which now looks like being held by up by one of the smaller members of the governing coalition) and the move by the Bank of Japan to indulge in some quantitative easing to try and get the economy moving out of its current bout of deflation.
The Tokyo market jumped 10% last week, leading the region which saw sharp rises elsewhere.
Our market was up just 2.9% for the week while the region jumped by more than 5%.
The MSCI Asia Pacific Index in fact closed up 5.5% last week to 120.14, the sharpest weekly advance since the week ended May 8.
The index is now up 72% (Wall Street is up 63%, London 59%) from the five-year lows of early March as government stimulus spending revived global demand, especially in China.
Japan’s broader Topix Index rose 9.7% (the Nikkei 10.4% and ended above 10,000 points for the first time since late October).
The Shanghai Composite Index jumped 7.1%, while Hong Kong’s Hang Seng Index rose 6.5% after the government said it would continue stimulus policies next year.
The reaction today in Asia from the markets to Wall Street’s weak close should tell us a lot about whether the region remains coupled from the American markets.
Our market could be up 23 points, according to the futures market, but the sharp fall in the value of the yen will have a much bigger impact in the Japanese market than elsewhere.
With our solid base of commodities and financials, the tug here will be interesting between the sell off in gold and the strength in financials.
The settlement of the BHP-Rio Tinto iron ore venture (subject to regulatory green lights) and the huge LNG deal for the Wheatstone project, will be big positives for resources here.
American investors are now having to consider a rate rise to 0.25% solid (not the range of 0% to 0.25%) or to 0.50% next year, which will start them fretting about the end of the easy money days.
Even after a rise to 0.50%, US money will still be cheap.
The US economy is recovering, perhaps running a bit faster in some areas than expected. But production and orders, plus retail sales remain mixed to weak.
It’s why the performance last week by Wall Street, even without the late sell down Friday, was hardly convincing.
For the week, the Dow rose 0.8%, the S&P 500 gained 1.3% and Nasdaq was up 2.6%.
That was weak compared to the rises in Asia and in Europe where the Dow Jones Stoxx 600 Index rose 2.7% following two weeks of losses.
The Dow Jones Industrial Average gained 22.75 points, or 0.2%, to finish at 10,388.90. The Standard & Poor’s 500 Index added 6.06 points, or 0.6%, to 1105.98. Nasdaq rose 21.21 points, or 1%, to end at 2194.35.
Limiting the market’s advance was the US dollar’s strength, which caused commodity prices and related stocks to fall, and helped fuel expectations that the US Federal Reserve might have to start considering raising interest rates.
The Australian share market has ended firmly in the red after mining stocks led a broad-based decline, following weak commodity prices.
At the close Friday the ASX200 index was down 72.4 points, or 1.5%, at 4702.2, while the All Ordinaries fell 68.1 points, or 1.4%, to 4721.2.
Among the sectors, materials stocks fell 2.2%, financials fell 1.3% and industrials dropped 0.9%.
Gold shares will be where the blood will be spilled today.
