Skipping Over the Bear Trap
In a data driven week some investors will be grateful that Australian shares didn’t trade yesterday. Friday night’s weak US payrolls data roiled share sentiment, but a stronger than expected US ISM read overnight has local traders looking at a positive re-start after the Easter break. Early trading will likely be subdued ahead of retail sales data and an RBA rate decision.
The one pillar of strength in an uncertain growth world crumbled on Friday. US jobs numbers finally succumbed to weakness in other US data. Although the underemployment rate fell, it was only a fall in the participation rate that kept the headline unemployment rate steady at 5.5%. The resilience of US shares may fade this week. Investors appeared to support a slower Fed rate lifting regime, but this enthusiasm could be short lived as the ramifications of a lower recovery sink in. In the meantime, this could mean a hundred point lift in the Australia 200 index, and another crack at the 6,000 level.
The risk heading into the RBA’s rate decision this afternoon is looking one-sided. Short term interest futures have backed away slightly, but are still implying a 60% probability of a cut today. With a cut “baked in” to current levels, a decision to hold cut bring disappointment in trading this afternoon.
For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.
Frequently Asked Questions about this Article…
The weak US payrolls data negatively impacted share sentiment, but a stronger than expected US ISM read has given local traders a positive outlook for Australian shares after the Easter break.
The stronger than expected US ISM data has provided a positive sentiment for traders, suggesting potential growth and stability, which is encouraging for investors looking at the Australian market.
The resilience of US shares might fade due to the weak US jobs numbers, which indicate a slower economic recovery and could lead to a reassessment of the Fed's rate lifting regime.
The RBA rate decision is crucial, with a 60% probability of a rate cut already factored into the market. A decision to hold rates could lead to disappointment and affect trading negatively.
The Australia 200 index could see a hundred-point lift, potentially making another attempt at reaching the 6,000 level, influenced by the current market conditions and economic data.
A lower US economic recovery could lead to a slower pace of Fed rate increases, affecting global markets and investor strategies, particularly in terms of risk assessment and portfolio adjustments.
The participation rate plays a significant role in the US unemployment figures, as a decrease in participation can keep the headline unemployment rate steady even if job numbers are weak.
The RBA rate decision is seen as one-sided because market expectations are heavily leaning towards a rate cut, and any deviation from this expectation could lead to market disappointment.
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