Safety Warning

Impressive rallies in safe haven assets such as bonds and gold indicate further nervousness from global investors. Weak US economic data and a subdued outlook from US retailer Walmart further weighed, although the real reason for selling may have more to do with market rhythms than economic fundamentals.

Globally, share markets sold off 12-20% over August and September. In October so far, most have rallied back by 6-10%, with much of the bounce occurring last week. These sorts of sharp moves are rarely sustained, and a pull back this week entirely predictable. However, the interpretation of these events is in the eye of the beholder. Bears see this week’s selling as a resumption of the downtrend after a corrective rally, while bulls view it as the first correction of a new bull market. Until the Australian index trades above 5310 or below 4920 there is no definitive answer.

This makes today’s employment data a crucial read. While job creation well above or below the consensus forecasts of 5000 new jobs and 6.3% unemployment will speak directly to current trends, it will also inform RBA decision making. A higher number will paint a stronger economic picture, but also reduce chances of a rate cut. This “two-edged sword” nature of a non-consensual read increases the risk that an initial reaction is a false move that will quickly reverse itself.