The list of things to worry about in Australia is starting to grow. Which will likely see our market disconnect further in the short term to the nonstop rising of the US. Stage 4 lockdowns in Vic has slowed the recovery efforts, China continues to target Australian agricultural imports and the rising Aussie dollar will affect many local exporters. We will see Australian GDP announced today which will confirm what we already know, which is the first recession in 29 years.
What we need to remember though, we are ahead of this from a stimulus point of view with the RBA being extremely accommodative with Zero rates and the government’s Keepers and Seekers allowance. So we should see a much quicker recovery than we have seen in other economic downturns.
Sunday we will receive more details on a path forward for Victoria which will hopefully give our market a much-needed hit of positive sentiment.
The AUD is expected to continue to rise to around 80 USD. At this stage, we are seeing the local market react negatively. But overall we haven’t seen the market break lower, only travel sideways. Also, the recent pullback in the markets wasn’t just exporters and currency sensitive stocks. Key staples like WOW and COL have fallen a lot as well and the big 4 banks of recent.
Otherwise, US markets were mainly led by the NASDAQ again. Health Care, Energy, and Utilities where the only sectors in the red whilst Materials were the strongest performing.
Despite a strong rally into fresh all-time highs in the U.S last night, our market is set to open flat. Yesterday’s fall is further proof of our disconnection from the U.S over the past few weeks or so. We retraced from our lows, indicating that the selling was exaggerated and our flat open perhaps indicates at this stage it was just a flash in the pan.
We remain cautious as the selling was likely largely prompted by a strong AUD, and speculation of a continued rise to 80c in the medium term. This puts pressure on our miners, and a few other key companies that make up a large portion of the XJO.
Technically, the break down yesterday removes the uptrend line from play. The XJO continues to trade in the uptrend though, until we see lower peaks and troughs, so we continue to assume to bullish to sideward movement in the medium term. We had an intraday bounce from key support at roughly 5900 yesterday, with the next resistance at 6000. The Stochastic were showing bearish divergence over the past week or so, so we did have warning signs that our market was due for a pull back. At this stage it seems unlikely it will be sustained, especially if the U.S continues to push into all time highs.
We have our GDP at 11:30 AEST, and they are expecting quite a drop into negative territory for the second quarter (from 1.4 to -5.3). This officially would put us in recession. How the market reacts to this could be good or bad. If numbers remain negative then it is likely the government continues stimulus, and therefore perhaps may be a positive sign for market. On the other hand, these numbers are to be expected so it may already be baked in.
US shares pushed further into all-time highs overnight, with the major S&P 500 index setting the sixth record close in seven days. Once again it was tech stocks leading the charge, with stocks that support working from home rising extremely well. Stocks were helped by fairly positive economic data, with a read of manufacturing activity coming in much better than expected.
There was also a greater drawdown in US oil inventories than expected, adding to the sentiment that global economic activity is picking up. Basic Materials was the strongest sector overnight, with large gains seen. Tech and financials stocks also rose, while every other sector closed a bit lower.