CMC Markets Weekly Report

Stocks in the U.S ended near session highs on Friday, with the Dow finishing at its best level since May 2008, buoyed by a monthly government employment report that blew past estimates and a handful of impressive economic news.

Stocks in the U.S ended near session highs on Friday, with the Dow finishing at its best level since May 2008, buoyed by a monthly government employment report that blew past estimates and a handful of impressive economic news.

The Dow Jones Industrial Average jumped 156.82 points, or 1.23 percent, to close at 12,862.23, its highest close in almost 3-1/2 years. The S&P500 rallied 19.36 points, or 1.46 percent, to finish at 1,344.90. The Nasdaq soared 45.98 points, or 1.61 percent, to end at 2,905.66, hitting its highest since the tech bubble of 2000.

The economy created 243,000 new positions in January, the largest increase since April 2011, according to a government report, blowing past estimates of 150,000. Meanwhile, the unemployment rate slipped to 8.3 percent.

The pace of growth in the services sector posted a surprising acceleration in January, hitting its highest level in almost a year, according to the Institute for Supply Management. And factory orders climbed for a second month, according to the Commerce Department.

European shares rallied after UK services PMI jumped to a 10-month high. And negotiations over the Greek debt deal continued, with Greek Finance Minister Evangelos Venizelos warning that the European Central Bank must take part in Greece's hoped-for debt swap.

Meanwhile, rumors swirled that Greek Prime Minister Lucas Papademos may resign if talks for further austerity fail, which would jeopardize the whole bailout process.

There was little relative movement in currencies on Friday night given all major centres saw positive data. The US dollar index hardly moved at 78.96 and the Aussie finished slightly higher, up 0.3% to US$1.0776. The big loser on the night was gold, which fell US$32.40 to US$1726.20/oz on diminished expectations of QE3.

No such impact for base metals nevertheless, which all jumped 2-3%. Oil joined in the act, with Brent jumping US$2.15 to US$114.59/bbl and West Texas US$1.41 to US$97.77/bbl.

On Tuesday the RBA has to make a rate decision, and it's not going to be an easy one. No doubt the RBA would have liked to have seen a resolution in Greece before this week to remove the potential for a downside shock in the near term. However, looking at the recent data, including last week's manufacturing and services PMIs, one might say another cut is not urgent.

Today sees the TD Securities monthly inflation gauge for Australia along with the ANZ job ad series. We'll also have December month-of and quarterly retail sales figures. Just how bad was Christmas? Tomorrow brings the rate decision along with the construction sector PMI, and Wednesday should see the Westpac consumer confidence report unless it's postponed due to being a rate decision week, which sometimes happens. NAB will summarise business confidence for the December quarter on Thursday and the RBA will release a Statement on Monetary Policy on Friday.

The ECB and Bank of England will both make rate decisions on Thursday, following on from China's release of monthly inflation data. China's trade balance will be revealed on Friday.

It's a quieter week for US economic data this week. The highlights will be wholesale trade on Thursday followed by the trade balance and Treasury budget on Friday along with the fortnightly consumer sentiment measure. The Treasury will auction three and ten-year notes and thirty-year bonds during the week which might be interesting in the context of Friday night's bounce in yields.

On the local stock front, welcome to the six-monthly result season proper. There are quite a few reports due this week, highlights include Cochlear (COH)- given their recall, BHP Billiton (BHP), Rio Tinto (RIO), News Corp (NWS), Telstra (TLS) and Newcrest (NCM). Macquarie (MQG) will provide a trading update as will National Bank (NAB).

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