IG Markets - Morning Prices April 10

Resuming from the four-day Easter long weekend, the Australian market is set to start firmly on the back foot, with the ASX 200 expected to unwind approximately 50 points, or 1.2% lower around the 4270 mark. Having recently established a trading range above 4300, the slip back below that level today will be a clear disappointment to many market technicians, and suggests that the local market still has some work to do before it can definitively put the 4300 level in the rear view mirror.

The catalyst for today’s expected losses is the disappointing non-farms payrolls report released in the US on Friday, when all major global equity indices were shut for the Good Friday holiday. Heading into the release of the jobs report, the market had expected another 200,000 plus print, so the 120,000 headline number was a bit of a shock and a clear setback to those espousing the momentum of the US economic recovery. Overnight, US markets had their first opportunity to react to the report and it was not well received, with the Dow, S&P and the NASDAQ all falling by more than 1%, adding to their worst weekly declines of the year posted last week.

With European bond yields rising last week on renewed fears over peripheral European nation indebtedness, the most obvious beacon of hope has been the improving prospects of the US economic recovery, of which employment picture had been a key pillar. However, Friday’s weaker-than-expected jobs report, did (predictably) spark some optimism that further QE from the Fed might now be back on the cards, after it was seemingly off the table last week after the release of the most recent Fed minutes. The bottom line is, the ‘will they/won’t they’ debate over the Fed’s intentions looks like it will continue for a while longer, and will be a key factor in shaping the market’s direction this week.

For today however, we can expect to see broad-based losses, with the biggest declines likely to be seen across the cyclical, material, energy and industrial sectors. Interestingly, BHP’s ADR is pointing to the local stock opening at $33.81, below the technical support level of $34 that has been in place for the last six months. Will this see a rush of shorting from traders, or spark a buying frenzy from longer-term investors? The answer to that will go a long way to determining the extent of today’s losses.

With many market participants away this week, volumes are likely to be thin, which should accentuate the expected volatility as we head into the US earnings season and a period of seasonal weakness.

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