Global Markets Overview – 4/7/14

NFP miss and US earnings season

We saw an interesting reaction to the non-farm payrolls on Friday night, with a read of 192,000 - short of the consensus read of 200,000. However, it was the first time the ADP read and the official read had been with in 2000 of each other in over two years. It was also interesting considering the consensus print had been bid up on some calling for the possibility of 300,000 jobs to be added.

There was an interesting sell off on the NFP figures; the DOW and the S&P reversed morning gains to tumble into the close, but more interesting than that was the fact that emerging market currencies saw real pressure as the carry trade came under stress.

The Turkish lira, the Brazilian real and the South African rand all lost ground to the USD - this is likely to hit the commodities space this week considering the make-up of Brazil and South Africa's economies. Watch the moves in copper, aluminium and nickel over week as the carry trade sees a slight unwind. The market has been quite calm for the past month and equity and currency trading has been appealing; however this miss (although really the print was very positive) is likely to see volatility in the US increasing, adding more pressure to the carry trade.

Tech glitches

What is also going to be fairly influential this week is the start of the US earnings season - of most interest are the companies listed on the NASDAQ. Tech stocks are taking a hammering in the US; last week it started in the bio-tech space, with some small and mid-cap players losing up to 50%. Now the risk-off sentiment is spreading to high-end high risk growth stocks such as Tesla, Facebook, LinkedIn, Amazon and Netflix. All experienced large sell-offs as the NASDAQ lost 2.6% and broke through theJune 2013 uptrend, the hundred day moving average, and saw a bearish divergence.

US earnings season starts tomorrow with Alcoa, however there is a growing feeling that last-quarter earnings are not going to measure up to valuations. Considering the macro data out over the January to March period and the fact that the market once more hit record all-time highs last week, will earnings back the prices? Is earnings season going to be the reason for a pull back?

I think the best way to judge how the US earning season is tracking is to watch the earnings from Visa and AMEX; consumer confidence has been strong over the past six months, though has spending kept up with the sentiment read?

Ahead of the Australian Open

The futures markets from Saturday were under pressure from the impact of US equity trading on Friday. That has filtered into the futures markets valuations and we are therefore calling the ASX down 35 points on the 10am bell (AEDT) to 5387.

This could be the fifth rejection of the 5400 to 5415 range, with minimal Australia data this week, China on holidays for the Ching Ming festival and Japan looking at the BoJ rates and policy statement. This might be the final rejection with a push-back to 5350 - even as much as 5300 points - as the bulls run out of steam.

However, there may be some moderation in the sell-off as iron ore futures once more correctly called the spot iron ore market with Fe62% moving slightly higher to 115.70, which saw the moves from the past two week consolidating. BHP's ADR is pointing lower, however the drop is less than the overall market is expected to fall by and may prop up what looks to be a broad-brush move.

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