US markets seemed to have found a level of resistance for the moment. This is seeing them give back a little, which is normal considering the strong moves recently. So, in the short term in the US, the momentum is slightly bearish to sideways. But overall, we believe markets will continue to trend up in the medium to long term time frames.
In the US many states are choosing to tighten restrictions which will see some buying back into stay at home stocks. In saying that, headlines around vaccines and treatments are also stopping any panic selling in markets. A period of sideways or a slight pullback is likely, we will need to see some good news to spark some further buying. This could be further news around vaccines or perhaps fiscal stimulus.
Locally Vic relaxed restrictions further over the weekend and virus numbers in SA only increased by 1. This is all further positive news. NSW and VIC borders are now reopening, and we expect more and more borders to continue to open as we approach Christmas. States are doing a great job in getting local tourism back operating and incentivising people to travel in Australia.
The XJO is set for a modest rise on open this morning, hovering near 6550. This is following weak leads from the U.S on Friday and their futures this morning.
Technically we are trading between two key levels at 6500 and 6600, though these levels are taken from a market that feels so long ago and trading under different forces.
It is clear that the momentum has slowed in bull runs locally and abroad. We continue to be largely led by overseas, though we remain stoic against large falls. This is largely because our local news is rather positive.
Locally, the scare we had in SA has turned out to be not as bad, and we are coming into summer and a strong spending season with little to no cases. On the other hand, U.S cases are soaring, keeping markets subdued.
Looking at the next couple of months we are looking at a strong finish for the year (provided our cases stay low). There is always the threat the U.S market spits the dummy for whatever reason: be it lack of government or Fed. Reserve stimulus or surging virus cases. We remain cautiously hopeful.
The main headwind for our market may be a rising AUD vs USD. Our government and RBA cannot out print and spend the U.S. In addition, if the U.S market remains strong, especially on the back of a vaccine, money will likely continue to shift into higher risk assets like equity markets and out of the USD. All of this should lead to a continued weakening of their dollar and a rallying AUD. Unfortunately, this puts pressure on our miners, which make up a large portion of our market, and some other key players likes CSL and MQG.
US shares closed lower on Friday, which was the third lower close of the last four sessions for the average US share. Prices remain close to all-time highs, but momentum has definitely stalled recently, with high virus cases, a lack of further US stimulus, and legal challenges around the US election continuing to hamper sentiment.
A number of states are struggling with current virus levels in the US, but there is an expectation that the first round of vaccinating will come within the next three weeks, which could relieve some of the issues. Financials and Technology stocks led the selling on Friday, with almost every other major sector also closing lower to some degree. Utilities were the only stocks to finish higher on average, with a very modest rise for that sector.