Monday, March 07 2011
The US economic data is finally beginning to feed into an improvement in the employment data. Lower unemployment claims drove the market last night and offset lingering concerns over the middle east conflict. The employment data is a lagging indicator but positive nonetheless as it enables a virtuous cycle to develop. Improving employment drives greater demand (for retail sales, houses etc) which drives greater employment – capitalist renewal at work.
Obviously the Middle East concerns will remain important to the market. The key area to watch is any growing instability in Bahrain and / or Saudi Arabia. This would drive the oil price higher and place some pressure on global growth. The other negative we are monitoring is the Chinese market. We continue to hear that their actions to contain inflation are having some impact. If the actions cause a greater slowdown than expected then resources and the A$ are likely to trade down. How would this impact our portfolio? We have a strong position in stocks earning US$, a modest position in resources relative to the market (although we would reduce further if further evidence of a slowdown emerged in China). So we would certainly expect to outperform in that scenario.
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