While bonds, currencies and gold continued to adjust for the outlook for higher US interest rates, stock markets have been largely unaffected over the past few trading sessions. This scenario looks likely to continue this morning, delivering a firm opening for the Australian market.
However, markets are likely to remain relatively cautious ahead to tonight’s US employment data. Good supporting data this week, including the strong employment conditions revealed in the ISM Non-Manufacturing PMI and a drop in US jobless claims, have created an expectation that tonight’s job growth number could be solid. A moderate miss to the downside in the US jobs data will probably do little to change the outlook for a Fed rate hike this year. However, a good read could put the issue largely beyond doubt. This is an outcome that could fuel the current selling momentum in bonds and gold while driving the $US higher.
Despite current selling in the bond market, equities appear to have an eye on the longer game. Even if US 10 year bonds were to move back towards 2% and the Australian rate towards 2.3%, this would still represent an ongoing “Goldilocks” scenario for stock markets against a back ground of moderate economic growth and some improvement in commodity prices.
Stocks like James Hardie industries with significant businesses in the US may find support following the overnight drop in the AUDUSD exchange rate while gold stocks look likely to break recent support today as nervousness builds about ongoing selling momentum in gold.