It was another uneventful night last night as investors and traders ponder on the next short term move in the market. This is common after such a strong move higher than we saw 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-dollar 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.
Locally travel stocks are rejoicing at the combination of good Vaccine news and Victoria welcoming home abroad travellers. This signals that travelling restrictions are slowly being eased, and if we do not see another major breakout this should be the theme throughout this year.
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 fairly flat overnight, with an overnight release of the Federal Reserve meeting minutes revealing that there is no plan to change US monetary policy from their current expansionary settings any time soon. Markets had been worried to some degree about expected future inflation, but the minutes revealed that the Fed didn’t really share these concerns, at least for the time being. Additionally, we saw Treasury Secretary Janet Yellen unveil the details of the tax plan to tax corporate profits that have been syphoned overseas.
There was a lack of significant economic data overnight from the US, but we did see the US government deficit come in larger than expected in February and we was a bigger than expected drawdown in US oil inventories. Technology stocks and Oil & Gas stocks fared the best overnight, while Basic Materials stocks were the weakest; every other major sector closed fairly flat.
Tim Michaelides is the Head Trader at Emerald Financial Group.
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