James Gerrish - Morning Note

09/08/10   - 7.42am   -  by James Gerrish 

The US market dropped sharply in early trade after key employment data came in below expectations and last months figure got revised lower. According to the Bureau of Labour Statistics the US lost 131,000 jobs in July against market expectations for a loss of about 60,000. It's important to note that this figure is skewed due to the drop in temporary employment as the US census winds down.  (Census cut 143,000 temporary workers and still has 200,000 to go).  

The main figure to look at is the Private Sector Employment figure which showed a rise of 71,000 jobs. Interestingly, it was manufacturing that offered most support adding 36,000 jobs - well ahead of market expectations. We've highlighted to importance of manufacturing for the recovery in the states and this is an encouraging piece of data for the sector. 

The unemployment rate remained steady at 9.5% - better than the 9.6% expected by the market. 

The Market's Reaction...! 

Aggressive selling was the first reaction by the market with the DOW JONES sold off 159 points to hit the intra session low at 11.00am. When sanity returned  investors began to look at the positive aspects to the figure and pushed the market sharply higher (closed down 21 points). Jobs are being created in the private sector and this is being led by a resurgence in manufacturing. (Last week we had positive data on the services sector - the biggest sector in the US). The unemployment rate stayed steady and the trend in the data is improving as shown in the chart below. (The sharp pullback in June was courtesy of the Census).  



It was an obvious over reaction by the market and i'm very encouraged by the strong buying into weakness that occurred on Friday. We've also seen this trend occurring over the last few weeks where the market has consistently finished well from the session lows. 

We spoke about Gold on Thursday suggesting a bullish technical pattern and this has now been confirmed with a sharp move higher on Friday. Crude Oil & other commodities were sold off due to some market concerns around employment  and this may put pressure on our local miners today. 

I'm still an firm believer that risker assets that are leveraged to growth in emerging markets will offer the greatest upside potential over the medium term. Any weakness in this area would present an attractive buying opportunity. 

On the market, the DOW JONES eventually finished down -21 points or -0.20% to 10653. The FTSE 100  lost -33 points or 0.62% to 5332. Locally SPI FUTURES are matching down -30 points