Market expected to post modest gains

09.47 AEST, Thursday 7 March 2013

Market expected to post modest gains

By Miguel Audencial (Sales Trader, CMC Markets)

The Australian equities market is expected to post modest gains despite the Dow Jones Industrial Average Index grabbing headlines by reaching all-time highs.

In the US, the ADP Non-Farm Employment Change figure, which was higher than expected, provided the US blue chips index the momentum it needed to extend its gains. The release of the US Fed’s Beige Book also offered some support, reporting that US economic activity has expanded at a ‘modest to moderate’ pace.

It is encouraging to see the Dow reach record highs last night, which was backed by economic data and a positive report from the US Fed. The effects of the strong US housing data released last week cannot be discounted as a significant factor in the current price level of the Dow. However, there are traders who feel that the equities market may have gained too much too soon and a pullback may occur with the slightest hint of economic uncertainty.

Crude oil has faced various price pressures over the last 24 hours. The passing of Hugo Chavez may provide uncertainties in Venezuela, a major producer of oil. While The higher than expected ADP data figure caused the US dollar to strengthen making crude oil and other dollar-denominated commodities relatively more expensive. A higher than expected crude oil inventory figure also delivered a further drag to the economy.

On the other hand, the release of the Fed’s Beige Book later in the trading day improved demand prospects for crude oil and helped it trade at around $90 a barrel.

SPI futures are indicating flat to slight gains in the Australian equities market open this morning, with the release of Trade Balance data later today expected to provide further direction for the market close.

The Bank of Japan is also expected to make a monetary policy statement sometime today. With recent discussions about ‘currency wars’, expect traders to monitor this closely.

The US Non-Farm employment figure, which is due on Saturday morning, will be one of the most watched economic data released this week. A figure higher than expectations may provide additional momentum in the equities market, while a number that is well short of a 161,000 gain may trigger the pull back that a number of traders anticipate.

http://www.cmcmarkets.com/

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