Overnight the S&P500 and Dow closed slightly lower, The Nasdaq closed slightly higher. The energy sector was down after Crude continued to pull back. Otherwise, it was a quiet session. Investors are waiting for more news around Biden’s infrastructure and US CPI Thursday morning.
U.S. senators reconvened Sunday to work toward the passage of a $1 trillion infrastructure bill, a top political priority of President Joe Biden. The Senate is slated to hold another key procedural vote late Sunday and vote on final passage Tuesday. We are hoping to hear more on this tonight or tomorrow morning.
Locally reporting will kick off in a big way this week. Reporting continues to come through strongly which JHX revenue up 35% and Challenger rebounding close to pre covid earnings. All eyes will be on CBA though come Wednesday; CBA will need to beat expectations and announces share buybacks if they are to maintain a share price above $100. This will set the scene for the rest of the banks.
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 edge slightly higher on open following the SP500 finishing slightly lower last night. Ultimately, markets are consolidating at the top of the range. Our market has some bullish pressure as we head full flight into our reporting season. Investors are reweighting, taking profits, cutting losses, and moving capital into companies that are expected to report well. We often see a push up for many stocks through this season but can often track sideward or come off following it.
Markets continue to tackle several fundamental factors that are unfolding at the moment. Biden’s infrastructure bill is coming closer to passing, and locally our RBA should maintain its expansionary monetary policy. In addition, company reporting is expected to be great, but forward guidance remains murky. The virus, the cause for the stimulus, has 16 million Australian’s in lockdown, with our two largest economies suffering. The market is worried about both the delta strain and supply chains, and expected tapering of Fed bond buying following better than expected U.S job data. We also have not had any meaningful pullback since perhaps February or even November.
In the short term, things might remain uncertain, as it has been the past few months. In the medium to long term though, sentiment seems to be remaining bullish.
US Markets
US shares closed lower overnight, with the market taking a breather after a strong jump on Friday. There are some concerns about the approaching US government debt limit, which looks set to be tested in October, but lawmakers do have some time to address this. Also weighing on markets has been the overnight statements of several Federal Reserve members who believe that ‘the Fed’ should start tapering bond purchases in the coming months. In US economic data overnight, there were more job openings than expected in the month of June. Eight of the eleven S&P 500 sectors closed lower overnight, with Energy stocks the weakest, followed by Real Estate and Industrials. Healthcare, Financials, and Consumer Staples were the only stocks to close higher on average.
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Tim Michaelides is the Head Trader at Emerald Financial Group.
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