Markets reversed overnight, despite strong earnings. It seems investors are unwilling to buy ahead of the FED announcement tonight. 10-Year yields continued to fall as money flows towards bonds. With Covid cases on the rise, it is unlikely that the FED will change anything to their current settings. There is a mixed view on Inflation and what the FED may do next. So, at this stage we are likely to see some volatility around FED and inflation announcements.
This week is a big week, with around 165 of the S&P500 companies reporting, with many of the big names in the Tech and Communication services sectors. Apple, Microsoft, and Google reported after hours with all three smashing expectations. Most stocks fell into their reporting but we are already seeing signs of buying in after-hours trading.
All eyes will be on the FED tonight, it is unlikely that they will change anything at this meeting, but investors tend to hang onto every word, therefore we are likely to see some volatility around this. We could see them start to discuss how and when they will taper bond buying. The IMF came out with a warning there’s risk inflation that will prove to be more than just transitory, pushing central banks to take pre-emptive action.
Bidens Infrastructure Package is also making some progress, with many hoping that it will go to a Senate vote this week. There are two parts to this, at this stage, the market will be happy to see the $579 billion in funds for transportation, broadband, and utilities. Which sets the stage for pushing forward with the rest of Bidens 3.5 trillion package.
Cases in the US remain high with risks of lockdowns in certain areas. Locally SA is coming out of lockdowns, and VIC has relaxed lockdowns to allow many businesses to reopen. NSW numbers are yet to show signs of topping out which has seen them push out lockdowns for another month. 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.
Australian Outlook
The XJO is expected to edge lower on open this morning following a volatile yet small pull back in the U.S last night. We are expected to open near 7,400, the previous resistance and all time high that we cleared yesterday. We will test it this morning, and depending on how China, and U.S futures trade today will likely dictate whether we hold or fail. If we fail, the next target is the top of the recent consolidation range near 7,375 to 7,350. These levels have proved significant resistance in the past, and so will likely act as a strong support.
Don’t be surprised if our trading is quiet today with perhaps a weak pull back: as the U.S Fed is expected to release a statement tomorrow morning (AEST). Monetary policy and Fed spending has been a clear driver over the past few years, particularly since the Covid crash, and so any statements are pulled apart by the market and digested in no quiet manor.
The materials have gone for a strong run over the past week or so, and likely due for a small retracement. The financials seem to be holding steady.
US Markets
US shares closed lower overnight, with selling across all the major US indices. Tech stocks fared the worst, with the tech-heavy NASDAQ index falling the most in two months as investors took defensive positions ahead of the Federal Reserve’s policy meeting, which will occur over the next two days. US tech may have also been responding to recent selling in Chinese tech stocks, who have sold down heavily recently after Chinese Government meddling in their businesses.
Shares sold down heavily despite strong company earnings results, with Apple, Google, and Microsoft all reporting better than expected earnings when they reported after market; despite this, US futures currently sit lower. In addition to Technology stocks, Consumer Discretionary, Communications, and Energy stocks also fell strongly, while Utilities, Healthcare, and Real Estate fared the best.
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