Positive international data supports stronger opening

09.54 AEST, Thursday 4 October 2012

Positive international data supports stronger opening
By Miguel Audencial (Sales Trader, CMC Markets)

Better than expected US employment and services data will support the Australian equities market to open stronger in today’s trading. The significant drop in the Crude Oil price last night will put pressure on the Energy sector throughout the trading day. The weakening Australian dollar following the RBA’s rate cut and yesterday’s lower than expected trade balance figure will provide some support to export based stocks.

The US Market edged slightly stronger following better than expected ADP Non-Farm Employment Data and ISM Non-Manufacturing PMI figures. Normally, I would expect strong numbers from these two reports to push the US Equities indexes to post gains close to the 1% mark; however, weak services figures from China and Europe only resulted in marginal gains.

One of the highlights from last night’s session was the 4% drop in the price of Crude Oil despite inventories dropping unexpectedly, positive employment and services data from the US. Oil traders are naturally forward looking and what they can see from both the supply and the demand are very bleak. Crude Oil output is currently in its highest state since 1996 and demand projections are also weak following weak service figures from China.

There is a good possibility that Oil was oversold in last night’s session as both demand and supply can adjust quickly to prices. More demand can result from “cheap” Oil prices and conversely producers can adjust their production volumes as prices decrease.

Australian Retail Sales figures are due later today and it will provide a good indication on the sentiment of the economy. The market may dismiss a poor figure as this is data taken prior to the RBA’s latest rate cut. However, it could also go in the other direction as a bad result can prompt investors to think further cuts may be on the cards. A good result may give the sentiment that there is no need for further cuts until year end.

In the US, two important economic figures are due in the next couple of days with Unemployment data expected tonight while Non-Farm Payroll is scheduled tomorrow night.

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