Our market will follow US markets higher today, with our futures pointing to a serious gain on open. Our rise will come in spite of a fairly unclear speech from Scott Morrison overnight, where he announced further shut-down measures. Technically, our market seemed to have bottomed out for now around 4,500 on Monday and now looks set to rise back to the technical 5,000 level. That 5,000 level will likely act as resistance, so we will have to break above this level for further gains to be confirmed. If we can break above 5,000 there is a downtrend line not too far off that could also hold our market back.
US markets enjoyed their best session of the past decade overnight with the Federal Reserve announcing plans to purchase corporate debt and provide loans to companies. The Dow closed 2112.98 points higher (11.37%) and the S&P 500 was up 209.93 points (9.38%). European and Asian markets rose strongly as well.
Republican and Democratic politicians are still negotiating the details of a fiscal stimulus package that is expected to total around $US 2 trillion. Markets didn’t care about their dithering however, because the Fed has announced the strongest monetary intervention the world has ever seen. Notably, the Fed is planning for the first time ever to lend directly to companies as well as to purchase corporate debt. This massive wave of stimulus is an attempt to turn the tide on the current market selling, but its no guarantee that this will achieve its goal in the short-term. Technically, the low for the S&P 500 index now appears to have formed at the 2,200 level. The next target to the upside should be some potential resistance around 2,500, should that break, the downtrend line for the market comes in around 2,600 – if that can break, it may indicate a further rebound.
XJO Implied Volatility was up 12.47% and closed at 41.95%. The US volatility was up 0.13% and closed at 61.67%.
US oil rose slightly overnight, prices remain depressed.
Gold skyrocketed overnight, prices are extremely strong, prices in Australian dollar terms (given the fall in the AUD) are absolutely ludicrous.
Iron ore bounced back yesterday and overnight, ending two days of strong bearish movement. Prices remain strong considering the economic situation.
The Aussie dollar bounced back a bit again overnight, but prices remain extremely low relative to the US dollar.
Plenty of news sites are attributing the rise in the US overnight to the fiscal stimulus that their houses of government is currently debating. However, it is the action of the Fed that has caused markets to rise. By agreeing to lend to companies and purchase corporate debt, the Fed is essentially guaranteeing the credit worthiness of struggling businesses. At the moment, this is limited to purchasing investment grade debt, but it is unclear if this is the same for the direct loans they plan to make. There is still a huge risk if lots of companies see declines in their credit ratings, but so far the ratings agencies seem largely content to keep much of their ratings in the investment grade area.