Weak wall street a worry

Published in Daily Telegraph, July 2010

The Australian share market is set to open today lower after Wall Street provided a negative lead on Friday with its seventh straight loss.

Investors have been worried about the progress of the global economic recovery in recent weeks due to inconsistent economic data, and that trend continued with the latest US employment figures.

The US economy shed 125,000 jobs in June, slightly more than expected, but the unemployment rate fell to 9.5 per cent from 9.7 per cent as more than half a million workers exited the workforce.

Light trade ahead of a long weekend to mark Independence Day added to the losses on Wall Street, where the Dow Jones Industrial Average lost 46.05 points, or 0.5 per cent. The Dow posted its lowest close since October 5 last year at 9686.48 points, and suffered its longest consecutive run of falls since October 2008.

Earlier the Australian share market managed to buck the system and break its eight-day losing streak on Friday, buoyed by a resolution to the resources tax negotiations. The benchmark S&P/ASX200 index gained 1.2 points to finish the week at 4238.7 and the broader All Ordinaries index added 2.2 points to finish a week of heavy losses at 4264.8.

But the optimism will be short lived. The September futures contract is pointing to a 0.7 per cent loss when the market opens on Monday, down 30 points at 4,213 points.

All up, the past two weeks had literally wiped out the gains made since the May 2010 low.

"This suggests that the psychology of our market is now much more bearish than it is bullish," Wealth Within chief analyst Dale Gillham said.

Commonwealth Securities senior analyst Craig James said the market was likely to open lower, but several factors could see increased demand for resources stocks.

"There wasn't much change in the gold price, the oil price only lost a little bit of ground and base metals were actually higher so it's not such bad news," Mr James said.

"We'll probably see a slightly weaker day but investors will have had the weekend to digest the latest news about the minerals resource rent tax.

"And those investors who have been sitting on the sidelines uncertain about investing in resource stocks may be a little bit more comforted to come back in."

However uncertainty created by an impending federal election will see a continuation of the market's volatility, he said.

In the week ahead, analysts expect no change to interest rates when the Reserve Bank of Australia meets for its monthly board meeting tomorrow.

Official labour force data is released on Thursday, with forecasts of 20,000 new jobs created and the unemployment rate to remain steady at 5.2 per cent.

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