Money is flowing back into bonds as we see the US and Australian 10-year bond yields fall. US 10 year down 2.83% and Aus 10-year down 2.97%. This does not mean the market is bearish or going to start a bearish trend any time soon. It is likely though that markets could pull back a little here of just consolidate for a little while. It is simply investors and traders switching assets as the bonds become a little more attractive at this level.
Markets rose strongly over the last week, so there is no real surprised to see a period of consolidation of a small pullback. The overall trend is up so we expect the much more upward movement to come, but we may need more concrete news on US fiscal stimulus first.
Metals and Iron Ore continued to add gains overnight whilst Crude held onto recent strength. We still feel that Materials stocks locally are lagging recent moves in their underlying commodities. Keep an eye on names like BHP, RIO and FMG that all report next week.
The banks seem to have found their high for the moment, CBA’s report was good considering we are in the middle of a pandemic, but perhaps it is hard to justify a $90 price tag. The banks have had a fantastic move higher over the last month. So once again a consolidation or a bit of profit-taking is likely here.
Insurance stocks are becoming interesting as the market reacted kindly to IAG’s report yesterday. The insurance stocks are amongst the few sectors that have not recovered since the COVID-19 pullback last year.
Australian Outlook
With flat leads from overseas, our market is expected to edge slightly lower on open. U.S futures remain in the green, and considering we are expected to open only 20 points lower, don’t be surprised if these losses are reversed during our session.
We once again are consolidating at the top of the range after making fresh post fall highs. We sit at historical resistance which has played out recently but also back before the large fall last year. If we can manage to push through this level, the next key target is likely around 7000, though our market has interim resistance every 50 points or so.
US Markets
US shares closed flat overnight, with shares stalling for the second day. Prices traded between the red and green before eventually finishing flat. There was little in the way of economic data, other than inflation data, which showed lower CPI than expected.
There was also oil inventory data that showed a further drawdown in US oil inventories. Oil stocks were again the strongest performers overnight, with US oil stock up large amounts across the past fortnight. Every other sector pretty much closed flat. Though conditions remain very accommodative for share price growth, its hard for shares to continue to advance further into all-time highs without a pullback.
Tim Michaelides is the Head Trader at Emerald Financial Group.
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