Markets continue to whip around sideways, as central banks confirm that level of stimulus and low interest rates are likely to remain at very accommodative levels for some time.
The big picture in the short term is Stimulus vs Recession. This recession is vastly different to others in that interest rates are at record lows, with Central banks and Governments stimulating economies like never before.
The earning sentiment quant for the top 200 stocks has been slowly rising again over the past few weeks. This is indicating that earning expectations are starting to slowly improve from the lows of 11%. This is likely happening as we are slowly seeing company’s release some guidance one how things are going which is helping many analysts adjust earning expectations. In saying that a reading of 28% is still very low suggesting that many of the top 200 companies are going to report weak earnings this year.
With positive leads from U.S trading last night that put them close to the top of their consolidation range, our market is set to open higher at our key resistance of 6000. U.S futures sit flat this morning, and which way they turn through out our session today will likely dictate the aggressiveness of our move. It is likely we see us flirt with 6000 today, with reluctance to break through without very strong U.S futures.
All in all it looks like another luck luster day for our market.
We need to keep an eye on U.S reporting which starts soon as it could be a wakeup call for markets. Following that we have our own reporting season starting early August. The markets are obviously disconnected from the real economy now, and we know they will reconnect at some future point. These reporting seasons may be the catalyst. With the first half of the year a write off for many balance sheets, it may largely come down to forward guidance.
Despite this, and any other negative news around the virus or economic data, its important to remember that markets are still trending higher in the medium term, with no sign of a change. Granted, we have been consolidating for some time, and the momentum and volatility has been pulled from the market, but until we start seeing proper indications of a pullback we continue to assume a gradual rise.
US stocks were mixed overnight, but mostly closed higher, with a turn-around led by positive news on the vaccine front. Pfizer Inc and BioNtech SE released the results of a trial that showed their product prompted patients to produce antibodies against the COVID-19 virus. The virus is still a major problem in parts of the US, with California and Arizona continuing to report record daily increases in cases. We also saw the Federal Reserve meeting minutes for June, which showed that the Fed believes they will need to keep monetary policy at stimulus settings for some time. Tensions between China and the West, but particularly the US continue to be high, with the US rolling out sanctions to punish China over human rights abuses against Muslims in the western Xinjiang province. We also officials from the UK government announce they would open a path to citizenship for 3 million Hong Kong residents.