More whacks from offshore for the confidence of local markets and investors today, while the Aussie dollar is poised to slip under 90 USc and plumb new three year lows after the solid June jobs report in the US on Friday night, our time, all but confirmed in the market’s mind that the US Fed will start slowing its third round of quantitative easing in the next couple of months.
News of the 195,000 new jobs created in June, plus an extra 70,000 added in revisions for previous months, means the US economy is now doing as well as the Fed and chairman, Ben Bernanke hinted at in their comments and statements after the June 18 – 19 meeting of the US central bank.
That means September (and not early August) looms as when the Fed will start reducing its $US85 billion a month in purchases of treasury and mortgage securities (bonds etc).
The news of the good jobs report sparked a solid day’s trading in the US on Friday night, our time (which was light because of the Independence Day holiday on Thursday a lot of people took a very long weekend).
And the 1% rise on Wall Street came despite a significant surge in 10 year US bond yields to 2.74% at the close – a rise of 1% in the past month.
That in turn saw the US dollar rise and gold and other commodities weaken (again), although oil remained firm (but looking ‘toppy’) because of the tensions in Egypt.
And those moves in turn sent the Aussie dollar down sharply – falling to around 90.66 USc, and looking (if this week’s data from China isn’t up to expectations) to fall under the 90 USc level.
And, even if the Chinese data is not alarming (for nervy investors), the continued upward pressure on US bond yields and the value of the greenback, will work to weaken the Aussie and alarm local investors.
Watch petrol price rises come back into the forefront of public moaning from this week as well!
The higher US bond yields on Friday helped lift the greenback to a near three-year high against a basket of currencies (the US dollar index, a basket of six currencies traded on the ICE futures market in the US and London).
So given the flow of data and market reaction in the US, it wasn’t surprising that a 1% rise on Friday in the local market will become a possible half a per cent fall at the opening with the share price futures contract showing a 22 point dip for the ASX/200 index.
Higher US bond yields to maintain pressure on markets
Friday’s solid rise here left the local market in the black for the week – something of a surprise after the big swings in sentiment all week.
For the week, the ASX 200 Index added 39.1 points, or 0.8%, to 4841.7 points, while the All Ordinaries rose 51 points, or 1.1%, to 4826.4.
As a result of Friday night’s gains, the Standard & Poor’s 500 index ended last week was up 1.6%, the Dow was up 1.5% and Nasdaq continued its outperformance with a rise of 2.2%.
For the year so far, the Dow is up 15.5%, while the S&P 500 is up 14.4% and the Nasdaq is up 15.2%.
But some US analysts caution that there may be some rough days of trading in the next month as the market accommodates the looming slowing in the Fed’s big spend (which will continue into 2014 at a lower rate, though).
They point out that Friday’s bullish dealings might alter when more dealers return this week.
As well they point out that the usual low levels of trading in the US summer (July through early September) will make for volatile days with some big swings in sentiment.
The nitty gritty of the June jobs report was also solid. Not only was there 195,000 new jobs and 70,000 additional ones found for previous months, but there was a surprise 0.4% rise in average hourly earnings.
The slight rise in the unemployment to 7.6% was also viewed as good news because it showed that more people were now looking for a job.
As well the percentage of the population looking for work rose.
That will all encourage the Fed. QE3 is going to start being reduced by the Fed, so get used to it and whatever ructions it might cause in markets.
