Caution looks like being the market byword at the start of the trading week. Traders will be waiting on the re-opening of China’s stock markets after the holiday break.
Another round of selling with sharply lower prices in US and European markets on Friday makes it difficult for investors to be confident. In this context, China’s stock market has the capacity either to fuel concerns if it falls further today or to allay fears, if it rallies after weekend comments from authorities that the stock market rout is close to ending.
The sharp drop in the Aussie Dollar at the end of last week also has potential to influence stock market trading. The definitive break below 70c may see further selling by international investors concerned that further steep falls in the currency could erode the valuation of their Australian investments. The weaker currency should, however, be a source of relative support for Australian export companies and those with significant off shore operations that report in $US.
Aussie Dollar weakness reflects a “risk off” sentiment in international markets, particularly when it comes to commodity currencies. A solid set of US jobs data also contributed to the Aussie falling against the US.
While US job growth missed expectations by about 34,000 in August, this was offset by an upward revision of 44,000 in previous months’ data. With the unemployment rate now at 5.1% and the underemployment rate continuing to head in the right direction at 11.3%, it’s clear that the US labour market is doing well enough for the Fed to begin lifting interest rates. These numbers also suggest it may not be too long before wage growth starts to improve in at least some sectors; helping to move the Fed’s other benchmark, inflation ,closer to its target level
Traders will be without a lead from US stock markets tomorrow due to the Labor Day holiday, creating another reason for caution towards the end of today’s session.