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.