Market feels effects of low data

Market feels effects of low data

By Miguel Audencial (Sales Trader, CMC Markets)
4 April 2013

The local equities market is currently feeling the effects of lower than expected employment and services PMI data from the US. Weaker commodity and crude oil prices are putting pressure on the materials and energy sector which are underperforming the market at present.

The better than expected Australian Building Approvals and Retails Sales have provided some relief in the equities market but it does not look like it will provide the market the needed boost to finish in positive territory.

The major US equities indices posted notable losses from the overnight session caused by a lower than expected increase in the ADP non-Farm employment change and a weaker than anticipated ISM Non-Manufacturing PMI figure. These figures are a reminder that there are speed bumps on the road for full economic recovery despite the recent highs reached by the S&P 500 index. Various risks are present in the market and there is a possibility that an investor will buy an overvalued stock if an investor buys shares indiscriminately because of the fear of missing out.

Another possible reason for the pullback from the US market last night is because of the statement from Federal Reserve Bank of San Francisco President John Williams that the Fed may start to reduce its $85 billion a month quantitative easing program earlier than expected. Although this is a positive sign on the overall state of the economy, investors are likely to see this as a signal to lower their valuations because of its reliance on this easing program.

What is interesting is that the market appears to have shrugged off the events from North Korea. Gold, a safe-haven asset, has performed poorly so far this week. However, I would not be surprised if the precious metal posts some gains if the conflict from North Korea continues to escalate.

Crude oil lost about 2.8 per cent in the overnight session which was primarily caused by a higher than expected increase in inventories. Data showed that stockpiles rose by 2.7 million barrels compared to the 1.8 million barrels anticipated by analysts, a difference of about 900 thousand barrels. Weak ADP Non-Farm employment and ISM Non-Manufacturing figures released overnight also caused some selling pressure. Oil traders also put into consideration on the poor US and European manufacturing figures released just a few days ago.

US Fed Chairman Bernanke’s statement tonight will be closely watched by investors hoping it will provide the market with information on the plans of the Fed regarding its current $85 billion a month bond buying program.

www.cmcmarkets.com

ENDS

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