There's a lot hanging on today's employment report

The stock market looks set for a steady open this morning while investors wait on the Asian markets and local employment data to provide direction.

The mixed fortunes of the European and US stock markets last night point to the impact that currency markets are having on investor thinking at the moment. The stronger $US is seen as a negative for US stocks with many of the larger stocks in the US index having significant offshore revenues. However, Dollar strength is improving the earnings outlook for many stocks outside the US. This was behind the rally in European and Japanese markets yesterday. Local investors are likely to take a lead from whether Asian markets are again able to hold firm today in the face of a weak lead from US markets.

Disappointing data on China’s economy released after the Australian market closed yesterday might offset the confidence provided by a lower currency. Investors will be cautious about over interpreting the latest statistics from China given the potentially distorting impact of the Lunar New Year. Even so, it’s difficult to ignore the fact that all the data pointed towards softening growth and suggests that recent monetary stimulus is so far having a limited impact in the face of China’s property glut.

This morning’s employment data has the potential to be a key event for the Aussie Dollar. Weak jobs growth would cement expectations for the next RBA rate cut and fuel current downward momentum in the currency. But this is a figure with capacity to move markets in either direction. Significantly better than expected jobs growth would build on the solid numbers in November and December and see the Aussie Dollar downtrend turned around at least for now.

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