Our market pulled back yesterday following US futures lower, It seems markets are set to give some back after such a strong November. The move down accelerated after China’s Foreign Ministry posted a fake image of an Australian soldier cutting the throat of a young boy. This took matters between Australia and China to a new low. Morrison called for an apology, but China seems set to continue to escalate things.
Yesterday we saw selling in the Materials sector off the back of the news, in particular, BHP, FMG, and RIO. This is a sign that the market is worried that if the AUS – China relationship worsens then it could spill over to Iron Ore. In the background, Iron Ore continues to rise and is now over $130US per tonne. So, we must monitor this situation closely but also keep in mind that China heavily relies on our Iron Ore and cannot replace it quickly.
The China Australian tensions are a big deal for Australia and will heavily affect post Covid economic recovery. If things continue to head in this direction then business will need to stop be so reliant on them and start new trade agreements with other countries.
Otherwise not much else has changed, positive vaccine news continues to keep pouring in, virus numbers in Europe declining and US cases are showing some signs of peaking. Markets will be looking for some news on US Fiscal stimulus. If the US can deliver something pre-Christmas, coupled with the current pullback, we will have a great setup for a strong Christmas rally.
The XJO is poised to edge 25 points lower on open this morning near 5530 – a sign that the falls aren’t over. This follows flat to negative leads from the U.S last night as they consolidate at their all-time high resistance.
Where the U.S goes from here will likely influence the future movement for our market. Other forces that our market will focus on are the rallying AUD/USD which puts pressure on our miners and other key players, and a rallying Iron Ore price.
Today we have the RBA’s cash rate decision which is expected to remain unchanged. The market will focus on the rhetoric to make sure the language remains dovish.
The short-term pullback we are seeing is typical in early December, and also makes sense following such a stella run. The pullback is healthy for a strong uptrend, and with Christmas around the corner we could be simply poising to finish the year strong.
US shares fell overnight to end a quite bullish November on a weak note. Despite this, there was some strength in the market, with the tech heavy NASDAQ index reaching an all-time high overnight. November was actually the most positive month on record for global shares, so some profit taking towards its end shouldn’t be too unexpected.
US markets are still patiently awaiting the long heralded fourth fiscal stimulus package, but with only a two week window before US politicians head on holiday, we may not see a bill passed by the end of the year. Tonight we will see Fed Chair Jerome Powell front Congress, which could shine a light on the current direction of monetary policy. Healthcare and Technology stocks were the only risers overnight, while Oil & Gas stocks were the weakest performers. Every other sector fell to varying degrees.