Overnight the S&P500 and Dow closed higher as Financials, Energy Industrial and Materials push higher on the back of Bidens 550 billion in infrastructure spending. This will help see the US economy rebound after Covid and opens the door for the Democrats to approve a 3.5 trillion budget to spend further on their social security plan. This is a big win for the US and markets.
Crude, Metals and Iron Ore all rose on the back of this news, which should help see our materials stock rise today.
Reporting is set to continue locally; the long-awaited CBA report is in beating expectations on all fronts. Including a larger than expected share buyback announcement. But CBA may have already priced this news in, we will need to wait for the market’s reaction today to see if there is still any investor buying left.
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. This is more than half of all Australians in some form a lockdown. 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.
Australian Outlook
The XJO is expected to once again edge higher on open this morning. This follows a similar move from the U.S last night. U.S futures are slightly in the red.
Our market has shown surprising strength as select stocks rally into their reporting, pushing the index higher.
Today should be another day where we either drift higher or track sideward, provided U.S futures don’t push too hard into the red. Regardless, our market looks overbought in the short term, so we are due for a quick pull back or some extended sidewards movement. This could be triggered by a some bad reports, or simply by profit taking.
Iron Ore continues to disappoint, but gold seems to have stemmed the bleeding at this stage. The AUD remains low. Much of the strength of late has come from our banks. If Iron Ore stabilises, we may see profit taking in the Financials and a rotation to the oversold Materials.
US Markets
US shares ticked higher overnight after the US senate voted to pass a $550 million infrastructure plan, which represents the biggest US public works spending in a decade. The bill will now have to be passed by Congress, which is scheduled to be on break until September 20. US economic data was mostly weaker overnight, with lower productivity numbers and lower wage growth than expected, though we did see a drawdown in oil inventories. US markets will face a key litmus test tomorrow night, with inflation data for the month of July, many are expecting the Federal Reserve to soon start tightening monetary policy, so a strong inflation read could increase talk of tightening and cause some volatility. Eight of the eleven S&P 500 industry groups closing higher overnight, with only Healthcare, Technology, and Real Estate stocks closing lower on average. Energy, Materials, Financials, and Industrials were the strongest performers.
Tim Michaelides is the Head Trader at Emerald Financial Group.
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