It was an uneventful night last night with the US markets taking a breather after a strong break higher into all-time highs over the Easter period.
All in all, markets have everything they could want- Fiscal Stimulus from the US, extremely accommodative central banks, and the reinsurance that rates will stay low for a long time. Therefore, we still believe the uptrend will continue.
Markets will continue to monitor progress with President Biden’s $2 trillion infrastructure plan. The Devil will be in the detail on how they will fund it. The increasing corporate tax, and/or Janet Yellen’s global minimum corporate tax rate.
US reporting will kick off next week, with Fastenal on Tuesday, then the US Banks report Wednesday onwards. This can push stocks around a bit but tends to not move the overall major indices that much. April is typically a bullish month, which tends to lead to a pullback in May.
Australian Outlook
The XJO is expected to open fairly flat this morning, following similar moves from the U.S last night. Yesterday the market virtually did most of its dough in the morning, giving up almost half its gains by close. We opened close enough to our post-pandemic high near 6950 on open yesterday, that it is fair to say that we rebounded off it.
With the flat open expected this morning, it looks like we will continue to hold it today. This means our market is essentially trading in a broad ascending triangle, as the recent move up was started from a bounce of the long-term trend line.
Typically, we would expect the trend to hold and for resistance to break, but with a sideward dominated market, we could instead see a sideward break of the trend and shallowing out of it. It is likely we will need continued bullishness from the U.S to make fresh post-pandemic highs and move towards our all-time high of roughly 7200.
The AUD continues to track sideward at its lows and base metals seem to be tracking well. Ultimately this should help keep our miners moving higher as they recover from their recent lows.
US Markets
US shares closed lower overnight, with the index trying to push higher at points before drifting back below Monday’s close. Volumes on US exchanges were their lowest this year, with selling in tech stocks dragging the US indices lower.
While the market did close lower, the move was really quite small and US shares are really just tracking sideways at their all-time highs. US economic reporting overnight showed more job openings in February than expected, as well as a bigger than expected drawdown in US oil inventories. Telecoms and Utilities were the best performing stocks overnight, while most other sectors closed flat to lower.
Tim Michaelides is the Head Trader at Emerald Financial Group.
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