Friday’s pullback in the US markets were not as bad as expected after news came to light that President Donald Trump contracted Covid-19. The reaction in the US futures where indicating that we could see another large pull back, but it did not eventuate. We are setting up for an interesting month ahead in the US.
This week locally we will be focusing on the government budget where we are expecting them to go on a spending spree. They will be looking to bring forward stage two tax cuts and backdate them to July 2020. For the market, we will be looking at sectors of the economy that will directly get a boost from the budget. Infrastructure spending is expected to be big – The states will gain billions in use-it-or-lose-it infrastructure payments designed to encourage them to spend by providing more for those who get the money out the door the quickest.
The sentiment is still very mixed for the month ahead as there is a lot of key news to come. We have the Australian Federal budget tomorrow, US quarterly reporting kicking off next week. US elections early Nov, and local bank reporting early November as well. With so much for our market to digest we expect to stay sideways yet volatile.
With positive leads from U.S futures this morning, our market is set for a strong open near 5850.
Late into our Friday session, U.S futures tanked on the back of Trump and other Republicans catching the virus. Our market, which was largely holding up well for most the session, started pricing in the large, expected fall from the U.S that night. In essence, we largely priced it in thanks to the heads-up their futures gave us.
The fall wasn’t as bad as expected in the U.S session on Friday and with positive futures this morning, our market feels at this stage that the falls have stopped. This mood can change rather quickly though, especially with the volatility we saw during the weekend.
Its no coincidence that our market fell to key support on Friday. It is also the bottom of the channel we have been trading in since June. The expected strong open will show us bouncing from it – a positive technical sign which might provide reprieve over the coming days. Unfortunately, the market is also trading in a shorter-term downtrend, with the downtrend line coming in at roughly 5950 at this stage. Ultimately, this spells another more immediate pattern to focus on: a descending triangle. Typically, we would expect the downtrend line to hold and for support to eventually break. Though considering the broader pattern is a channel, it is less clear who the winner will be.
US shares fell on Friday in response to the news that President Trump had tested positive for COVID-19. US shares were significantly lower around the open but rallied intra-day to close well above the opening levels. We also saw the release of US unemployment data on Friday, which showed a lower unemployment rate than expected, which may have also helped US share markets higher.
Technology stocks were the worst performers on Friday, with healthcare stocks also faring poorly; most other sectors were flat to higher.