Momentum in the current move higher is weakening, but we can see this type of slow uptrend last for month’s, even years. So at this stage as long as the markets hold trend we need to hold the view that it will continue on 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.
The true test for the market will come once we hit a point of stimulus being unwound. We know that come July the Australian government will review Keepers and Seekers, which is due to end in September.
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.
The XJO looks to open flat at resistance. This follows U.S markets rebounding from the top of their channel. With flat to higher U.S futures our market will be very reluctant in preempting the U.S’ break of the resistance level by breaking our own. What is more likely is that our market falls or at least remains flat.
US markets pushed lower overnight, with rising concerns over trade tensions with China. Investors are starting to take the view that Trump will take a tough approach to relations with China after accusing them of being responsible for the large number of coronavirus deaths around the world. The concerns of the investing world were exacerbated by China indicating it will table a new Hong Kong security law to crackdown on the special administrative region. The selling overnight came despite better than expected Manufacturing and Service PMIs in the US, although the numbers were still extremely poor. Home sales also plunged, with existing home sales at their lowest level since 2011, although this was also better than expected. Most major sectors closed lower overnight, with the Oil and Gas sector performing the worst, despite an overnight drawdown in gas inventories. Financials and Telecoms were the strongest performers overnight, closing only slightly lower.