Momentum in markets continue to remain low, most markets continue to drift sideways to slightly higher. May is generally a weak month, either seeing a pullback in markets or a sideways move.
If the markets hold trend, we need to hold the view that it will continue the current path. If the trend breaks, we could see markets give back a good amount of gains from the last two months, so we need to be ready.
At this stage markets have what they need to remain stable;
- Hopes of a vaccine
- Low interest rates with the view they are going lower
- Bond buying, to keep the Credit markets ticking along
- Increased unemployment benefits and programs to help keep staff employed that would have lost their jobs otherwise
- Hints of further stimulus on the way.
We have seen two important bits of news this week. One that the Keepers allowance came in way under budget, and two – the government’s willingness to extend some form of keeper’s allowance in sectors like travel that need to the most.
If our government and the US continues down the current path of stimulus, we expect markets to remain fairly steady. The true test for the market will come once we hit a point of stimulus being unwound.
Earnings sentiment is still exceptionally low, with many analysts downgrading expectations. If sentiment continues to increase around lockdown relief, we could see a shift here later in the year. But for now, things are expected to be negative through the July – August reporting seasons. The next reporting season could be a volatile one as it will give us an insight on how bad some of these companies are doing and how much capital they have to ride through it.
Our market is set to travel higher this morning with strong leads from U.S futures. We continue to hover around resistance like the U.S, as they continue to digest the maelstrom of market sensitive news.
Broadly, the positive and negative news out there has kept us in a wide trading range, but it feels like the market wants to push through – it just can’t justify it yet. For a moment, we seemed set to beak higher, but escalating tensions with China and a subsequent tanking of the Hong Kong market has held us back.
US stocks closed lower on Friday, with trade tensions between China and the US dominating the headlines of financial newspapers. Ultimately the US markets performed far more strongly than most others, with their indices closing relatively flat. Initially US futures were pointing to fairly steep losses, but US shares did rally into the close, this was helped by the US infectious diseases head, Dr Anthony Fauci, declaring that he doesn’t support a prolonged lockdown. Utilities were the strongest performers during the session, while oil and gas stocks fell with the oil price, which pulled back after several days of gains. Most sectors were fairly mixed.