Overnight we saw all three major indices closed 0.80% – 0.95% staging a strong comeback. Crude managed to push back above $70 US a barrel despite stronger than expected inventories. Bond yields shot up as investors took profit from Bond trades and moved back towards equities. US 10-year bond yields fell from 1.70% to as low as 1.12% in 2 months. Yields pushed to 1.30% overnight.
Energy stock led the gains, dragging financial stocks back up with it. All sectors were in the green except Utilities and Real estate.
Reporting in the US continues to flow through strong with around 85% of companies beating earnings expectations. Netflix was a bit of a disappointment yesterday though, which is a sign of the times. As economies reopen some stay-at-home stocks will likely struggle to show growth as people spend their money elsewhere.
Cases in the US are hanging around 40-50k a day, which is not as high as Fridays reading at 79K. We will need to keep an eye on the Delta variant and be wary of pullbacks if daily cases overseas get worse. Locally with VIC, NSW and now SA in lockdowns we have perhaps more than half of the Australian population locked down. This is also weighing on sentiment. Markets though are unlikely to sell off too much as we have enough Aid measures to stop the local economy from spiralling out of control. At this stage, both the government and the RBA believe we will avoid another recession off the back of lockdowns.
Australian Outlook
The XJO is expected to have another strong open this morning following a continued move higher in the U.S overnight and their positive futures this morning.
Yesterday we gave up half our gains by the close, finishing once again near 7,300. This level continues to pull our market towards it and will likely continue to do so until we see more certainty overseas. The last couple of sessions in the U.S is a good start.
Our open is expected to be near 7360, which means we will flirt with the top of the recent consolidation range today. If U.S futures can remain green during our session our market will likely hold these gains and hopefully push through. Otherwise, don’t be too surprised if we see a repeat of yesterday and shed some of the gains by close.
Generally, things remain bullish with the worries around the delta strain dissipating as fast as they came (so it seems). In addition, both our market and the SP500 recently bounced off their longer-term uptrend lines – a positive sign that has historically led to further highs.
US Markets
US shares closed higher overnight, with prices spurred higher by strong corporate earnings. The current earnings season for US shares is shaping up to be one of their best ever, with around 85 percent of companies exceeding their already lofty earnings expectations; the expectations are that this season will show the strongest earnings growth since 2009, so such a high beat rate is a very bullish sign for markets. There was little in the way of economic data overnight for US markets, though a oil inventory read did show another build-up in US oil inventories, which wasn’t enough to push oil prices lower. US investors are still awaiting the passing of the US infrastructure stimulus bill, which still seems some way from passing. Energy stocks were the strongest performers overnight, while Financials, Materials, and Industrials also performed well on the night. Utilities stocks were the only stocks to fall any meaningful amount.
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Tim Michaelides is the Head Trader at Emerald Financial Group.
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