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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Frequently Asked Questions about this Article…
The stronger US Dollar is generally seen as a negative for US stocks, especially those with significant offshore revenues, as it can reduce their earnings. However, for stocks outside the US, a stronger Dollar can improve their earnings outlook, which has recently led to rallies in European and Japanese markets.
Asian markets can significantly influence local investor decisions. If Asian markets hold firm despite weak leads from US markets, it can provide confidence and direction for local investors, impacting their trading strategies.
Investors should be cautious because the recent Chinese economic data might be distorted by the Lunar New Year. Despite this, the data indicates softening growth and suggests that recent monetary stimulus has had limited impact, especially in light of China's property glut.
Today's employment data is crucial for the Australian Dollar as weak jobs growth could solidify expectations for an RBA rate cut, further pushing the currency downward. Conversely, better-than-expected jobs growth could reverse the current downtrend, at least temporarily.
Disappointing Chinese economic data could offset the confidence provided by a lower currency, leading to cautious investor behavior. This is due to concerns about China's softening growth and the limited impact of recent monetary stimulus.
A potential RBA rate cut, likely triggered by weak employment data, could lead to a weaker Australian Dollar. This might benefit exporters but could also signal economic challenges, affecting investor sentiment and market dynamics.
The employment report is a key event because it has the potential to influence currency trends and interest rate expectations. Significant deviations from expected jobs growth can lead to market volatility, impacting investor strategies and market movements.
Investors can prepare by staying informed about economic indicators and market trends, diversifying their portfolios to manage risk, and considering both short-term and long-term strategies to navigate potential market volatility following the employment report.
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