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Caution to continue

Another cautious start looks likely this morning as investors weigh the balance of risk and reward following recent gains.

At the end of the day, strong gains from current levels in the Australia 200 will require investors to “re-rate”  Australian stocks to the kind of above average levels currently applied to other international markets. Traders may require some indication that this process is getting under way before joining the band wagon.

Weaker metals prices overnight and some nervousness in bond markets are also likely to keep the opening tone subdued this morning.

Today’s employment data could be the key to how both the stock market and Aussie Dollar finish the day. After a string of strong numbers, many are expecting some mean reversion in job growth. This leads to the possibility that market risk is skewed towards better than expected data. Another month of strong job growth would be unambiguously positive and could see both consumer related stocks and the Aussie Dollar supported

Domino’s Pizza has played to its strengths with this morning’s announcement that it will acquire the Hallo Pizza chain in Germany. The potential for further geographic expansion is a core plank of Domino’s growth story and should be helped by this acquisition which is forecast to be EPS accretive before integration costs.  


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