Australia: With markets poised for a good number after the previous day’s buoyant ADP report, optimism turned to pessimism quickly when only 18,000 new jobs were created and the unemployment rate moved slightly higher to 9.2%.

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All equity markets fell heavily initially, although then recovered slightly to see the Dow off only 0.5% and the S&P 500 0.7% but both indices were up on the week overall. Oil fell over 2% and all base metals fell after the consistent gains of the last week.

Gold was up almost 1% to US$1,543 an ounce as investors moved away from the USD since the economic recovery appears to not be delivering the employment gains hoped for.

With US Treasury yields falling the market is looking to interest rates remaining on hold for longer than previously thought in the US market which help support higher yielding currencies like the AUD.

China released its trade balance for June, which saw a US$22.3b surplus up from the US$13.1b figure for May, the highest in 7months and beating the forecasts of US$16.3b. Inflation for the last year accelerated to 6.4% in June due to sharp rises in food, consumer goods and property costs.

All this still bodes well for the AUD as Chinese growth for Q2 is predicted to come in at 9.2% when released this Wednesday.

Majors: Although attention will start to shift this week to the first of Q2 earnings reports, which are predicted to rise by 12.7% for the S&P 500, the market will have a hard time putting the lousy US job numbers behind it.

The labour force participation rate fell to 64.1%, the lowest since March 1984. Fed Chairman Bernanke will meet with the US Congress midweek and his comments will be scrutinised for any indications of further measures to assist job growth.

If this wasn’t enough, negotiations between President Obama and his Republican opponents are becoming more intense as the projected August 2 deadline looms for increasing the current US$14.3t government debt limit.

In Europe, the EUR almost touched $1.4200 versus the USD after the downgrading of Portugal’s sovereign debt. As anticipated, the IMF agreed to lend EUR3.2b jointly with the EU to assist with the rollover of Greek debt due in the next 2 weeks.

On Friday, European officials will release the stress tests on 91 financial institutions. We expect volatility in all markets to continue.

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