Financial markets flooded with negativity

15.15 AEST, Monday 4 June 2012

Financial markets flooded with negativity
By Tim Waterer (Senior Trader, CMC Markets)

When it rains bad news it pours, and last week financial markets were flooded with negativity. Pitiful PMI’s from around the globe had put traders on edge however the real kicker came in the form of the US jobs data which caused much despair and left even the most optimistic of traders scratching their heads. The main question posed by the US jobs numbers was this; has a supposed US-recovery turned into a US-decline?

There was nothing indecisive about the reaction of risk assets, with the sharp mover lower being a direct response to the absence of any positivity with regards to economic indicators.

The lethargic state of the US jobs market has brought QE3 one step closer to becoming reality, which essentially imposed a cap to the Greenbacks’ safety-driven ascent.

With the chances of QE3 in one form or another back on the radar, Gold showed a change in recent character to trade inversely with equity markets. The tone taken by FOMC officials this week will hold the key to any push higher in the price towards US$1650 per ounce.

With demand-pressures seemingly non-existent, if we see more equity market tumbles over coming sessions Crude Oil may be looking at having tenure below US$80 per barrel before the week is out. Signs of central bank easing could be the only thing to stop the rot on the oil price slide at this stage of proceedings.

It has been all one way traffic to the downside across Asia, with traders clearly discouraged by the form slump of the US jobs market.

The prospect of further stimulus from the US is the only thing that has prevented the AUD falling further than it has. With the RBA poised to wield the axe on interest rates over coming months, if easing measures are also taken by the Federal Reserve this may offset the yield implications for the AUD and support it around the current levels. I expect the AUDUSD rate to trade in the 0.9530-0.9740 range in the lead up to the RBA decision on Tuesday. With QE3 waiting in the wings this should provide a floor below the AUDUSD rate at 0.9530 over the short term.

The gear lever was set firmly into reverse on the Australian market in response to what transpired in the US on Friday, with markets around the globe suffering an anxiety attack over the forlorn growth picture. Gold stocks were one of the few places of refuge for traders today thanks to the price climb of the precious metal to back above US$1600 per ounce. For the most part though, traders were heading for the exits until such time as there is the emergence of data from the US or Europe which provides signs of stabilisation.

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