US markets struggled to maintain upward momentum overnight with all sectors in the red except Materials. Metals were up strongly but Crude pulled back which led markets lower. It seems more and more likely that we could continue sideways here as the tug of war continues. We are seeing a lot of negative articles suggesting there is hyperinflation coming and that the bubble will burst. We see this commentary a lot in the market after a strong rise. But this commentary almost always comes out way before the market tops out.
Chances are the FED are doing some form of yield control to help keep the bond market in check. We expect to hear more about this in the coming weeks. One way or another though this market is rigged to go higher as Central banks continue to do whatever it takes to support economic recovery.
Over the next few years, we have confidence that Central banks will remain extremely accommodative and trust that the current uptrend will continue until something changes. From a monetary policy point of view, we will need to find the roof on Bond buying and see a clue that rates may go up. We never know what is around the corner but for now, cheap money should continue to push asset prices including share prices higher.
The RBA yesterday indicated that they are staying on the current path of monetary policy that is more and more bond buying to support the debt markets and no view that rates will go up before 2024. They are worried about wage growth. Asset prices will always go higher in this environment, but wage growth has been an ongoing issue for a long time.
Biden’s stimulus is also in focus as we await the first round of voting this week. One way or another, it will likely pass in the next few weeks but may need some adjusting as they continue to push for minimum wage increases.
The XJO is expected to edge higher on open this morning. Our market priced in much of the bearish move in the U.S last night as their futures yesterday hinted at it. We managed to hold the key support yesterday at 6750, which was the previous key resistance when we were trading in the channel from November last year to late January. This bounce this morning confirms we are willing to hold it at this stage, and if U.S futures remain in the green we should continue to recover. Otherwise, it looks like we are perhaps due for a rather subdued day until we get further leads from overseas.
The bond space continues to shake markets, but overall sentiment remains strongly positive despite the recent volatility. Its best to keep in mind that trends are defined and strengthen by short term pull backs, and though often we prescribe events to the ebb and flow of the market, world markets on the whole continue to trend higher regardless.
US shares closed lower overnight, with high value tech stocks leading the selling. The move lower followed a warning from Chinese banking regulators yesterday about ultra-high valuations in some overseas assets, which investors interpreted to mean equities trading on high price-to-earnings ratios. US shares also remained concerned with rising government bond yields, though they did stabilise overnight.
Investors will be looking for any sign from the Federal Reserve that they will intervene to a greater extent in the bond market but comments from FOMC members overnight were more focused on future inflation, which is not a great sign for equity bulls. Technology stocks were the weakest performers overnight, while every other sector also closed lower except for basic materials.