Morning traders.Market wrap: Futures traders expect our market...

Morning traders.

Market wrap: Futures traders expect our market to recover some of Friday's losses at today's open despite a poor session for resources and a fade on Wall Street.

The SPI futures index closed 23 points higher at 4729 after a surprise fall in unemployment in the US sparked fresh optimism about the American economy. But a surge in the US dollar on the prospect of higher interest rates quashed commodity prices and undercut Friday's rally on Wall Street.

The Dow Jones Industrial Average initially surged 150 points on news that unemployment fell to 10% from 10.2% in October and just 11,000 jobs were lost from non-farm payrolls. (Analysts had expected a steady unemployment rate and another six-figure fall in payrolls.) But most of the gains evaporated as the threat of rising interest rates saw the US dollar rally 2.8% against the yen, its biggest one-day gain this year. The Dow closed just 23 points or 0.22% higher, the S&P 500 gained 0.55% and the Nasdaq again outperformed, rising 0.98%.

Analysts said the disappointing reaction to the upbeat jobs data underlined how much of this year's US rally has been driven by cheap money with interest rates at record lows.

"One of the main risks to the market right now is that the risk trade could continue to unwind in 2010," said a chief investment officer quoted on MarketWatch. "I think the market is also telling us today that stocks are fairly valued for now." The major indexes are up nearly 60% from their lows set in March.

Friday's big losers in the US were precious metals miners after gold suffered its heaviest one-day fall in a year. An index of American gold/silver miners slumped 5.48% on Friday after gold futures tumbled 4.05%. Friday's losses wiped out gold's price gain for the week and marked its first weekly fall in five.

Oilers and natural gas companies also retreated in the US on Friday as resource stocks bore the brunt of the selling. Financial stocks were mixed and there were solid gains for airlines +4.33%, REITS +2.97%, transport stocks +2.21% and insurers +1.95%.

The major European markets rallied on the US jobs news. Britain’s FTSE added 0.18%, Germany’s DAX 0.82% and France’s CAC 1.25%.

Oil has been trending modestly lower since late October and closed at the bottom of its lower trend line. Crude oil futures slipped 1.29% to $75.47 a barrel after the US dollar index spiked 1.7%, reducing the appeal of commodities as an alternative investment.

Most base metals pulled back but the losses were moderate after a week of strong gains for copper, aluminium, lead and zinc. In London, copper lost 0.42%, lead 2.24%, zinc 1.87% and nickel 0.34%. Aluminium gained 0.33%.

TRADING THEMES THIS WEEK

U.S. RISK TRADE: On the face of it, Friday's jobs news in the US ought to have sent markets flying higher. The fact US stock indexes couldn't hold gains is confirmation that their rally has as much to do with cheap borrowed money as the economic outlook. In this looking-glass world, good news for the economy is not necessarily good for the market because a healthy economy = higher interest rates = less borrowed cash to support the market. If the US dollar continues to gain this week, it will be very interesting to see how American markets respond. The short-term outlook appears choppy.

METALS: I mentioned a week or two back that gold appeared to be going parabolic, which is the period of greatest gains with the greatest risk of a sharp reversal. Friday certainly delivered the reversal. Much will depend on how the US dollar performs this week but some analysts are suggesting that the top may be in for gold in the short term. Base metals fared better but the London Metals Exchange closed before the extent of the rally in the US dollar was clear. Caution is advisable.

ECONOMIC NEWS: It's a busy week locally and overseas, climaxing on Friday with US retail figures and the monthly swag of Chinese economic data. The week starts with the 9.30 am release of the AIG's construction index, followed at 11.30 am by ANZ's November job ads survey and the tourism industry's overseas arrivals and departures update. Tonight in the US: a speech from Federal Reserve Chairman Ben Bernanke and monthly consumer credit data.

Good luck to all.