Employment data front of mind this week

10.11 AEDT, Monday 8 April 2013

Employment data front of mind this week
By Ric Spooner (Chief Market Analyst, CMC Markets)

While international market response to the surprisingly weak US jobs has been understandably negative, the local market looks set to open fairly close to Friday’s close. The early tone may be supported by the fact that our market has lost considerable ground already and also because US markets managed to finish well off their lows on Friday.

Employment growth will be front of mind for investors this week. Friday’s US number makes a bullish outlook for the US economy in which the pace of growth accelerates over coming months seem far less likely. Jobs growth has averaged 181,000 over the past four months. This looks consistent with a scenario of moderate growth, not too far above stall speed as the economy battles the headwinds of fiscal constraint and a weak European outlook.

Locally, investors will focus on today’s ANZ Job Advertisements and Thursday’s employment number. The RBA’s continued easing bias on interest rates will be influenced by the state of the local jobs market. Analysts are looking for guidance on the extent to which last month’s 71,500 increase in Australian jobs was a “rogue number”. The RBA itself appears to have taken a cautious approach by failing to mention employment growth in its last statement.

Resource stocks have fallen significantly in anticipation of the commodity price weakness that is now playing out. Even so, the current weak tone in commodity markets is likely to keep the resource sector on the defensive for some time. Investors are hanging back to assess whether the current decline in metals prices is a limited correction or something worse. Friday’s drop in the iron ore index to $128 will set a nervous background to the release of China’s monthly CPI and export growth figures later in the week.

The S&P/ASX 200 index appears to be correcting its November to March rally. Fibonacci analysis suggests that the most likely scenario is that this correction has further to go. A low somewhere in the 50% to 61.8% retracement range between about 4650 and 4760 would fit with this scenario.

However, corrections of this size typically take some time to play out and they do some backing and filling of their own along the way. The index is now at a level that includes a number of short term Fibonacci projections including the 38.2% retracement level at 4847. A bounce from around these levels before the downward correction resumes would not surprise.

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