US data provides a ‘top up’ to extend the rally

15.22 AEST, Wednesday 4 July 2012

US data provides a ‘top up’ to extend the rally

By Tim Waterer (Senior Trader, CMC Markets)

The recent market rally which started Friday received a ‘top up’ in the form of encouraging US data (Factory Orders coming in at 0.7%) which contributed to give us another day of green numbers across Asian markets today.

Elsewhere, Yield prices in Spain and Italy continue to recede which in turn is increasing trading inclination to unwind safe haven US Dollar positions in favour of currencies offering better interest rate returns. The ‘carry trade’ is again starting to gain some traction with traders who are seeking yield opportunities in light of the more optimistic market mood. As a result, currency cross-rates like the AUDJPY are seeing more flows this week as investors hunt for better returns while safe haven currencies shift out of the spotlight.

The AUD broke through the 1.03 level today after the better than expected Retail Sales result (0.5% vs forecast of 0.2%) provided further buying reasons for the currency. The result today, coming after the surge in Building Approvals data on Tuesday gave further support to the argument that the RBA are in no hurry to cut rates again as could be interpreted from their statement.

Price activity on gold and oil markets of late tell us that traders are readying themselves for more pro-activity on the stimulus front from central banks around the globe. In the case of US Crude, a price above $90 per barrel in the short term now looks a distinct possibility should the good vibes about Europe carry forward into next week. However US employment data will likely have the decisive say on how far the oil price rebound can extend.

Following a pause on Tuesday, the ASX200 got back on the ‘gain train’ on Wednesday with the blue chip mining stocks capitalising on strong overnight gains in the commodities market It is the concentration of materials and energy stocks on the local market which allowed the Australian index to be the outperformer across Asian markets in percentage terms today, with gold and oil prices showing marked improvements after better US data settled some nerves.

The US Independence Day holiday will sap the financial markets of some liquidity this evening, however trading sessions Thursday and Friday could be back on the lively side depending on how US employment numbers pan out.
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