Morning Report: April 10, 2012

Markets reopened after the Good Friday holiday on a negative note as investors focused on the much-worse-than-expected US jobs data which showed that employers added only 120,000 jobs in March, well below the median expectations of a 205,000 gain. This figure was the lowest number in five months and broke a run of three consecutive months of greater than 200,000 increases.

The USD has lost some ground as the weaker than expected result has once again altered the likelihood that the Federal Reserve may yet introduce another round of stimulus to aid the US economic recovery. The EUR opens this morning at 1.3100 while USD/JPY is holding just above 81.50.

Interestingly, we are seeing the Chicago Board Options Exchange Volatility Index, otherwise known as the VIX, record its longest run of gains since 2003 as it rose for a seventh consecutive day. The start of 2012 had so far been characterised by low volatility across most asset classes. The rise in the cost of options and volatility is a sign that investors are moving to protect themselves against a perceived increased risk in the markets.

The VIX index had fallen a record 64% in the last half of 2011 as improvements in the US economy precipitated a strong upward trend in equity prices. The currency which may be most impacted by the increased volatility in the markets is the Australian dollar. It opens just above 1.0300 with further falls likely.

Equity markets in the US have reacted negatively to Friday's job data release. The S&P 500 has added to loses which saw it record its worst weekly performance in 2012. Financial and industrial shares recorded the biggest falls. In an environment where the European debt crisis looks likely to escalate with rising concerns over Spain, the shocking employment numbers in the US do not bode well for equity markets in general.

The earnings reporting season begins this week in the US with Alcoa due to release its first quarter results tomorrow. Corporate earnings will make or break the strong run in US equities so far this year. The S&P 500 has closed 1.14% lower at 1,382. European indexes are yet to resume trade while the Nikkei fell 1.47% to 9,546 yesterday.

Commodities have resumed trading after the Easter break slightly lower with the CRB index down 1.67 points to 304.82. WTI crude is down almost 1% to $102.35 on the soft US employment growth figures. Precious metals were mixed after the heavy losses incurred last week. Gold is higher by 0.77% to $1,642 while silver fell 0.8% to $31.50. Soft commodities are broadly lower with coffee losing almost 3%. Copper has slumped more than 2%. Today, we have the BoJ Press Conference and the release of the high-impact Chinese Trade Balance figures.

Gold opened this week $13 higher and moved sideways in tight range to finish at $1640, around the same price level as Monday morning. The precious metal was lifted by last week's surprised announcement of a sharply lower-than-expected US nonfarm payroll data showing a mere increase of 120,000 which has weighed on the dollar, as the possibility of QE3 comes back to some market players' minds.

Price actions were nevertheless subdued, showcasing a lack of market passion, which was also demonstrated by the $13 higher open on Monday which failed to see any short squeezes or enough bids to push up prices further. We maintain our negative bias on gold in the short term at least before a break of $1680, as gold holders have seen zero gains for more than half a year now while the equity market and even other commodities provide large returns, challenging bulls' confidence. Look out for a trading range of 1635/1650 for today.

Compass Direction
Short-Term Medium-Term
BEARISH NEUTRAL


AUD/USD dipped to the bottom of the expected 1.0255/1.0330 range during the Asia morning as speculative traders re-entered into the AUD short trades as expected. The low holiday liquidity didn’t help until the better-than-expected Chinese CPI result gave enough momentum for the pair to recover to 1.0300 before reaching a top of 1.0331 during the US session. A mix of expectations about the Bernanke speech shortly in Atlanta has the QE3 bulls setting a bid tone. However, as the markets closed in on the Asia open, the price headed back to the more comfortable 1.0300 level.

There are two medium level data releases for the Australian markets with ANZ Job Advertisements m/m and NAB Business Confidence. Neither is expected to be a real market mover but with the negative tone continuing to come over the Australian economy, any news is bad news. However, a break below 1.0265 does look unlikely or will have plenty of support if tested leading into the European session where all bets are off being the first full trading day of the week.

Compass Direction
Short-Term Medium-Term
BEARISH BEARISH