httpvh://www.youtube.com/watch?v=gaX18DS353o
A week of contradictions buoys the risk driven Aussie.
• Winds build behind US data but jobs delay line honours.
• Sovereign risk moves from Europe to the Middle East.
• Aussie rallies via RBA commentary, despite lower Business Confidence.
The data out of the US has been key in guiding global markets this week and there were some strong performers resulting in global equities recovering. This week has seen a round of positive data, namely New Home Sales, Pending Home Sales, and Consumer Sentiment not to mention manufacturing data. The manufacturing data was positive for risk with ISM Manufacturing (60.8) posting a stellar result which buoyed US sentiment and guided equities north as the S&P500 rallied 1.67%. The strong manufacturing data may be a precursor for Friday night’s Non-farm Payrolls figure however US companies have been the most effective in achieving labour efficiencies over the previous three decades. Employment figures are currently weighing on US sentiment and Initial (454K) and Continuing Jobless Claims (3.99M) figures were both particularly poor this week. A particularly weak employment figure on Friday will be a negative for the AUD.
The political uprising in Egypt holds real risk to global markets however recent developments have pared risk. Egypt manages a large proportion of global trade through the Suez Canal and has significant oil and gas deposits that support energy markets. The tinderbox scenes on the streets of Cairo this week were a result of a lack of democratic reform and recent reports of poor governance by Hosni Mubarak’s political party. Free elections have not been apparent in Egypt for at least his term in office of 30 years and the pro-Western Mubarak managed to avoid the question of reform both with citizens and global leaders during his time in power. The recent uprising has seen the emergence of Mohamed ElBaradei, a democratic liberal who sits between Mubarack’s party and the Muslim brotherhood. ElBaradei’s rise has calmed fears of social upheaval in the region and has allowed global markets and the Australian dollar to recover.
The Australian economy rounds out the week of contradictions as a risk neutral RBA offers tacit support to growth prospects. The Aussie rallied above 1.01 against the Greenback off the back of the abovementioned US Manufacturing data however the Aussie was already posting strong levels above parity due to RBA commentary following Tuesday’s interest rate decision (4.75%). The central bank noted that the country was not in dire straits due to the flooding with Governor Stevens noting this week that “private investment is beginning to pick up in response to high commodity prices” and that flooding was “unlikely to have a major impact”. The relatively hawkish comments from the always measured RBA Governor were in stark contrast to this week’s December NAB Business Confidence (-3) figure which is a poor reflection of all sectors of the economy. In a low data week, redeeming features were hard to come by.
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