Global Markets Overview – 4/3/14

Employment, service and the RBA

Macro data is back on the table as we look to round out the first week of trading in April.

Overnight the ADP non-farm payrolls data was released and showed payrolls in the US were boosted by 191,000 in the month of March, compared with 178,000 in February. This was below the market consensus of 195,000, but on the whole it does show that the US winter issues are melting.

One thing to note about the ADP survey and the official non-farm payrolls is that currently the initial prints have almost no correlation or any other relationship. Although the final print closes the gap, traders react to the initial prints; looking through the data all the way back toOctober 2012, not one pair of initial reads are within 2000 of each other; the last three reads have seen the comparison difference being as much as 100,000. However, the news has seen the estimates for NFPFriday moving to 200,000.

The equity market certainly enjoyed the positive leads from the employment data. The S&P moved within sight of 1900 points and if the ISM Services read is strong tonight and we do get a very good read from the non-farm payrolls, expectations would be for the S&P to hit this record high.

Having seen manufacturing Tuesday, today must be services Thursday; once again over 20 countries will release their services PMI numbers. With the developed world moving towards service-based economies, it will be interesting to see if the likes of Europe, the US and Australia are seeing this parts of the economy pick up the slack of the loss of manufacturing.

None more so than here in Australia; the AiG Services index last month saw a very strong expansion number of 55.2; considering the comments from Glenn Stevens and Philip Lowe over the past week, they are certainly believing the slack is starting to be pulled in from the mining sector. However, the employment data is not overly support of this; it remains weak and looks to be softening further despite what was seen at the last employment read: participation rates are still below 65% and the unemployment rate is ticking higher.

With Glenn Stevens due to address the American chamber of Commerce today, comments around the 'low interest rate' environment, the green shoots in consumer space and the increases in housing will be watched closely. If in his address there are signs of 'over-neutral' comments about housing and the low interest environment, the elevated AUD may get the push it needs to kick through 93 cents. Although retail sales and the trade balance are due earlier in the morning, the dollar will be watching Glenn Stevens with a keen interest.

Ahead of the Australian Open

With another positive lead from Europe and the US, we are currently calling the market up 14 points on the 10am bell (AEDT) to 5417. There has been a very interesting development with the index over the past two weeks; 5400 points has been a very strong resistance level which it has been unable to break. We will need to see if the market can hold at or above the 5400 level for the second consecutive day to see if this resistance point has clearly been broken.

What might weight on the market today could be the normalisation of the trade balance, particularly exports which were stellar in February. With the issue in iron ore pricing and the decline in demand over the month, it might weigh on the material space, which in turn may hinder the market's ability to clear 5400 points once more.

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