James Gerrish - Morning Note

We spoke yesterday about the importance of the employment situation in the US given that domestic consumption accounts for 70% of US GDP.  The big number this week is Non- Farm payrolls due out Friday however we got a precursor to this release overnight with the ADP Employer Services which showed companies added 42,000 workers - which topped expectations. A positive sign and another piece of evidence that supports our view that US employment is likely to see sustained improvement.  We also saw a better than expected print on the US services sector (Countries largest sector) which further supported the continued rotation into risk assets. 

Crude Oil really highlighted the continued appetite for risk last night after inventories came in higher that expected yet prices remained relatively flat on the session. Generally when data shows higher than expected inventories this puts near term pressure on prices - not to be last night. 

The continued weakness in the USD helped the situation and this would have prompted some buying in the Gold Market.  We've seen Gold in a short term downtrend however last nights price action suggested that this trend may be about to change with Gold rising above the recent short term high ( a positive technical structure). Price support in Gold sits around $1160 an ounce at this stage. 

On the market last night, the DOW JONES added +44.05 points or +0.41% to close at 10680. The FTSE 100 lost -10.32 points or -0.19% to close at 5386 but had an impressive turnaround to finish more than +66 points from the session lows. Locally, the SPI Futures contract is indicating a higher open on our market this morning by 28 points. 

Last Friday we wrote.... "We've been speaking about the demand for risk assets over the last few weeks as investors look to reduce defensive exposure in favour of growth orientated assets. To me this is a clear theme thats playing out and it was once again obvious overnight. The Euro was higher, the US Dollar was lower and the commodity index broke out from resistance. We also saw the Aussie Dollar bounce from support"

If we look at the commodity index last night & the Aussie Dollar its obvious for all to see that this theme has continued this week and we expect it to remain for the short to medium term (3-6 months) at least.