A raft of data points to a weak opening

A raft of news including strong US jobs data, weak Chinese trade figures and lower commodity prices look likely to produce a weak opening for the share market today.

Strong US jobs data for October leaves little doubt that, barring any unforeseen setbacks, the Fed is close to beginning its rate tightening cycle. With the unemployment rate now at 5% and the underemployment rate now below 10% and continuing to trend lower, the US labour market may be getting close to the stage where wage growth begins to pick up.

Mounting certainty that the Fed will hike rated in December comes after an 11% rally in the S&P 500 since late September. This creates potential for a pause or pullback in the stock market.

However, the US equity markets has been resilient in the face of mounting prospects for a Fed rate hike. Perhaps the major theme for US markets in recent weeks is that support for cyclical sectors like materials, Info tech, consumer discretionary and industrial has strongly outweighed selling of defensive sectors like utilities. This is typical bull market behaviour as investor’s position for earnings growth in the early stages of a monetary tightening cycle. If there is to be a pullback in the near term it may be more related to emerging market economies and how the question of how strong the $US becomes.

Weekend news of another set of disappointing trade data from China will be a source of concern for local markets this morning. Imports have been consistently weaker for 12 months highlighting problems for the Australian mining sector.