As a result, it certainly seems caution is warranted and investors are quite happy to take some profits off the table as markets consolidate. There has been some contrasting commentary after the emergency meeting among European finance ministers. While there have been conflicting reports, it seems discussions have been constructive and European leaders will reconvene on Monday to try and iron out a deal. Until then, there will be plenty of headline risk inherent in this market. Judging by the price action in the euro, nothing has changed and I would expect it to react instantly to any ground breaking news. EUR/USD continues to hold on to the $1.1300 handle and it really seems we are at an inflexion point where the next move is going to be significant, be it lower or higher. To the upside though, I feel any moves will be capped given the fundamentals continue to point towards a weaker single currency.
AUD slammed on poor jobs
While global investors have been on euro watch, there has been a bit of activity locally with January jobs numbers being released. In sharp contrast to the positive signs we had seen in December jobs, January saw 12,200 jobs lost, much worse than an expected 5,000 contraction. The data showed 28,100 full time jobs were lost while 15,900 part time jobs were added. At the same the unemployment rate spiked to 6.4%, the highest it’s been in around twelve years and much worse than an expected 6.2%. This data saw market pricing of a March rate cut blow out from around 40% to around 65%. The AUD had been fairly steady yesterday helped by the Westpac consumer sentiment reading and home loans data. However, with such poor jobs numbers, traders sold it off and it looks like it is headed back to last week’s lows in the $0.7620 region. There are a lot of factors working against the local currency now including China risk, weaker commodity prices particularly iron ore and a likely continuation of the easing bias.
Consolidation for ASX 200
The ASX 200 has had a day of consolidation and even the rise in rate cut pricing for March hasn’t been enough to trigger gains. While the market has spent some brief moments in positive territory, there is just no real impetus to keep pushing us higher from these levels. Most of the main reporting companies managed to deliver some solid earnings but given the market had run up significantly in recent weeks, it just wasn’t enough to keep some of these stocks bid. Telstra has been the highlight after delivering a 22% jump in profit as it enjoys good growth in domestic mobile use and a half a cent increase in its interim dividend. The stock traded higher early in trade but has since succumbed to some profit taking. Weakness in commodities has also continued to keep the materials and energy stocks at bay. Rio Tinto has managed to outperform and is firmer heading into its full year earnings report after-market today.
Slightly positive European open
Ahead of European trade, we are calling the major bourses mildly firmer as they readjust to the constructive discussions held by finance ministers. Yesterday we had seen some selling as investors exercised caution ahead of the meeting. On the calendar we have industrial production for the region and German final CPI data. Perhaps the UK deserves more attention given the BoE releases its inflation report and Governor Mark Carney speaks. Any changes to the BoE’s medium term inflation forecasts could have an impact on the sterling.