The mid-year volatility that has become a feature of markets in recent years is likely to continue this week, although with perhaps slightly less pronounced swings.
After almost daily reversals – huge falls followed by enormous gains – the market did little more than mark time last week, ending with an overall 0.8% rise.
Despite some solid gains on Wall Street Friday night, easing commodity prices are likely to dominate proceedings this morning when trading kicks off on the local market, with most pundits expecting some declines.
It is a terrific time for traders, jumping in on the troughs and selling into the rises. They’ve even been given room to pick up some scraps left over from all those computers desperately trading in fractions of a second for a fraction of a cent difference (see Robert Gottliebsen's Six resolutions for a new financial year).
The Australian dollar slipped again overnight, trading around US90.55c this morning, although in reality it was the US dollar that rose on the back of the US jobs numbers released Friday night.
US unemployment still stands at 7.6% but traders looked through the headline number for a positive read into the statistics, and particularly the growth in new jobs.
Employment has become the yardstick by which the US Federal Reserve’s stimulus program is being measured, and the timing for its eventual withdrawal.
Ben Bernanke added an employment target of 6.5% to the central bank’s usual goals – economic growth and inflation – for the American economy’s recovery and the timing of the taper.
In October 2009, US unemployment stood at a colossal 10%. By April last year it had fallen to 8.1%, and continued its improvement into this year, dropping to 7.5% this April.
Since then, however, it has stalled and even inched higher. It rose in May and remained at that level in June, indicating that while the Fed stimulus is working, it has some way to go before it reaches Bernanke’s magic 6.5%.
That is not to say that the Fed won’t begin to ease back on its stimulus until it reaches that level. But the jobs target is some way off and proving a little elusive. On that score, the tapering in stimulus may not be as imminent as many in the market believe.
The longer term trends though are obvious. The Australian economy is in transit, readujsting to a recovering America and a wilting resources boo (see Adam Carr's Can Australia avoid a confidence death spiral?).
The local dollar is heading lower as the US dollar rises, while domestic interest rates are destined to remain at record lows for at least the remainder of this year. That provides a wealth of opportunities for investors whose time frame extends beyond an hour or even a day.
After years of playing a backseat role to the great resources boom, the Australian east coast service economy finally is stirring.
Each day analysts are trawling through the list of Australian companies with American exposure or with US dollar earnings, to figure out exactly how far earnings will rise this year. The trend is there. It is just waiting for friends.