Overnight the SP500 and Nasdaq closed in the all-time high territory. The Dow is still testing resistance. Technically we are seeing signs of continuation on both the Nasdaq and SP500 charts. Tonight, we will see further Jobs data. There are a few large names to report tonight and next week, but most of the US reporting is now done. It has been a very strong earnings season for the US, and we will be watching closely to see if the Aussie reporting will be the same.
The US Senate will be voting on amendments to the Democrats infrastructure stimulus bill, this deal is for around $US1trn in funding, which is much smaller than some of the earlier proposals. But they are still looking to push forward with up to $US3.5 trillion in further spending once this deal is done. This is very positive for world markets, and it provides light at the end of the Covid tunnel.
Domestically, we now have 3 states in lockdown again, at this stage it seems Brisbane and Vic lockdowns will be short term in nature, but NSW will likely see a longer lockdown than originally anticipated. Focus is coming more and more on the Vaccine effort with plans being discussed on when and how they will stop locking down states. This is all light at the end of the tunnel for the market and with a large amount of government aid and monetary stimulus, the market is unlikely to fall on this. But some stocks like travel may.
RBA governor Philip Lowe will testify in Canberra starting at 9.30 am AEST. The banks will also realise statements on Monetary Policy today. The RBA made no change to their stance on Tuesday despite the lockdowns in NSW. In saying that they are still in high gear, planning to buy $4 billion a week in bonds until at least mid-November, and maintaining the target of 10 basis points for the April 2024 Australian Government bond. There is still no expectation of a change to rates until at least 2024. This is still very accommodative, and we see no signs of this changing this year.
Our market is heading into a reporting season, which will kick off on the 9th of August. Expectations are high that our mining stocks will deliver some of the best reports ever. Already we have seen RIO TINTO declare record earnings and dividends, but there are plenty of other miners set to do the same. Reporting from other sectors of our market is expected to be a bit more mixed. Our market typically takes a run into reporting and then pulls back or goes sideways through September.
Australian Outlook
The XJO is expected to edge lower on open this morning following a similar move from the U.S last night. Their futures sit slightly in the green which is likely buoying our open.
Our market is remaining resilient whilst the U.S tracks sidewards. Some of it may be put down to strength returning to Asian markets, specifically China following a strong selldown. In addition to this, we are heading into our reporting season and it is fairly typical to see buying going into this period.
The next month should be volatile as participants reweight and move capital between stocks and sectors following reports.
US Markets
US shares closed firmly higher overnight, with the flagship S&P 500 recording its highest ever close. The current strong US earnings season is certainly helping to power US shares higher, with shares seeing their best earnings growth since the end of the GFC. These earnings were able to offset the negativity of weak economic data, with more initial jobless claims than expected overnight, as well as an increase in the US trade deficit. US President Joe Biden is planning to pass an executive order on Friday that would aim for half of all cars sold to be electric vehicles. Nine of the eleven SP500 sector groups rose overnight, with Financials, Energy, and Utilities stocks faring the best. Healthcare and Materials were the only sectors to close lower on average.
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Tim Michaelides is the Head Trader at Emerald Financial Group.
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