The Australian Market pulled back from its highs on Friday trading, stalling at the local resistance at roughly 7,150. The market looked like it was going to head into a side-wards period, and could do so despite what the futures are showing this morning. The market overall is still trading in a longer-term uptrend, but it is likely we see a break of the acceleration this morning, and perhaps an eventual return to the longer-term uptrend line. The next key support to keep an eye on is 6,880.
Downer EDI Ltd (DOW) was up +6.0%, following a broker note by City Group noting, “Repositioning of Downer’s business away from fixed-price construction should reduce contract issues in FY21 and beyond…Further downside to FY20 is limited given problem projects are nearly complete and Downer is moving engineering, construction and maintenance unit away from risky construction projects.” Insurance Australia Group Ltd (IAG) declined -5.4%, after reducing its FY20 reported insurance margin guidance to 14.5%-16.5% from 16%-18%.
US markets closed lower in both Friday’s and Monday’s sessions. The Dow closed 453.93 points lower (-1.57%) and the S&P 500 was down 51.84 points (-1.57%). Asian markets are closed for Luna holidays and European market also closed mainly lower.
“U.S Markets fell heavily in both Friday night’s and last night’s trading, with over 2% fall in both the Dow and S&P500. The news is reporting that fears of global disruption, led by Asia could get worse as the Wuhan virus continues to spread and take lives. The infection and death rate becomes exponential and is reportedly exacerbated by China’s poor handling of containing the outbreak. People aren’t leaving their homes, going to work, or shopping, so both the fear of infection and the infection itself seems to be upsetting world markets.
Despite this, our market has recovered some of the initial falls in our futures (as our market was closed yesterday for Australia day public holiday) and currently puts us roughly 1.5% down, not as bad as the U.S. This is rather typical for our market as we don’t usually rally or fall as hard as U.S markets do. What will help stem the selling today is a strong fall in the AUD/USD which will help mainly our miners which represent 25% of our market, and a few other major stocks like CSL and MQG.”
XJO Implied Volatility closed at 11.951. The US volatility was up 0.54% and closed at 12.98%.
US oil fell again on worries that the Wuhan Coronavirus would reduce the amount people are willing to travel.
Gold jumped overnight and prices remain near all-time highs.
Iron ore fell into the Chinese Luna holidays and will remain closed for most of this week.
The Aussie dollar fell sharply following commodities prices lower.
Today’s trading. In Australia, data on NAB business conditions and business confidence is to be published.
Today we will likely see the mining stocks and travel stocks lead the fall as markets react to the fact that the Wuhan virus could be worse than first thought. Stocks that sell masks and other equipment that is used in a virus outbreak could see a bump over the next month or so, so keep an eye on Resmed and Fisher and Paykel. How the markets move from here will really depend on how long it takes to get the virus under control. Keep in mind we will see the US FED report on rates in the next few days and the RBA Tuesday next week which could be major catalysts for the markets.