FED Chair J. Powell continues to indicate that they will keep the foot on the stimulus pedal and suggested that government should also do more to help stimulate the economy.
With this talk being thrown around, markets will likely continue to hold or rise. The perception is that despite seeing bad data, whether it be weak company earnings or negative GDP ect, the weak economic data will be only temporary. When we get on the other side, of Covid-19 shutdowns the accommodative conditions should see the world economy see a quick recovery.
Tech overnight remained strong in the US with the NASDAQ closing slighting higher. This continued to help push our tech sector higher despite some of our tech companies looking very overvalued.
Financials are still lagging along with Energy as the recovery in those areas could take a little longer especially if there is a second wave.
Low earnings sentiment continues to be the theme as we edge closer and closer to US reporting season in July. The market is generally expecting low earnings this year, so we will be looking at reports through a different lens. We will be looking to see if companies will report better or worst than expectation. Reporting season as always can be volatile for individual companies so keep an eye on the reporting dates.
Australian Outlook
Despite the U.S having a small pullback last night, our market is set to open fairly flat. This may be largely due U.S futures also being rather subdued though sitting slightly in the green as of writing. U.S futures are largely likely to dictate our market moves today. If we see a strong push into the green we should follow suit and vice-versa.
Economic data continues to remain weak. NZ GDP came in worse than expected, and expectations were not high. Regardless, markets still have the juice to remain at these levels or push higher. It is more likely we head sideward in a broader range from here or grind up slower compared to the past month or so. With reporting coming over July and August the market is likely to remain reluctant to make leaps and bounds.
US Markets
US stocks didn’t do a whole lot overnight, with early gains petering out on light volume. Optimism around an economic recovery has been somewhat dented by persistently high COVID-19 cases around the world an particularly in the US. Tech stocks were the strongest performers overnight, with strong showings from Apple and Microsoft helping the NASDAQ to close in the green. Oil & Gas and Financial stocks were the weakest performers overnight, with every other non-tech sector closing slightly lower.
The movements in oil stocks followed a greater than expected increase in US oil inventories overnight. We also saw worse than expected building permits numbers from the US overnight.Every major sector closed in the green overnight, with the Oil & Gas, Healthcare sectors the strongest performers, while telecoms and utilities lagged somewhat.
Tim Michaelides is the Head Trader at Emerald Financial Group.
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