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Markets expected to rally following US jobs growth

09.54 AEST, Monday 6 August 2012

Markets expected to rally following US jobs growth

By Ric Spooner (Chief Market Analyst, CMC Markets)

The Australian market will follow international markets today by rallying in response to Friday night’s announcement of better than expected jobs growth in the US.

Friday’s jobs growth number of 163,000 creates the possibility that economic growth in the US may be better than investors are currently assuming. Monthly numbers are volatile so it’s not possible to jump to conclusions on the basis of a single month’s data. However, investors need to adjust for the possibility that last month’s improved number could be followed up with further improvement in coming months. This can create a virtuous circle of growth as an improving employment market allows consumer and business confidence to improve.

Australian investors will be conscious of the fact that recent data on the local economy may also be reflecting economic growth rates that are better than consensus expectations as we move into the profit reporting season. Last week’s retail sales and trade balance figures both exceeded expectations. Australian employment figures are due on Thursday and better than expected jobs growth would increase the chances that overall economic growth may exceed expectations. China’s July economic data due on Thursday will be a potentially significant set of numbers for investors assessing the current outlook as well.

A strong rally today will potentially confirm a successful retest of the 200 day moving average of the S&P/ASX 200 index. After breaking above the 200 day average last Monday, price fell back towards it later in the week with Friday’s low being just above the current average at 4206. A move above last Tuesday’s high of 4288 this week would confirm rejection of the 200 day moving average support and may set the market up for a rally towards resistance at around 4350.

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