Unemployment on Friday came in better than expected, but not low enough for investors to worry that the FED will start to taper. Thursday we will see a CPI reading with Core CPI expected at 3.4%. Even though this is higher than the FEDs normal target, the FED has indicated they are expected a temporary spike in CPI. This is caused by a combination of prices recovering from covid lockdowns and temporary supply chain issues.
The FED will meet next week which will be the main event for markets. Markets do not want the FED to taper bond buying too early. It seems there is starting to be more and more of a divide in the FED. With more and more members starting to form views that they should taper. Many other Central banks are either already starting to taper or are talking about taping.
Many articles are starting to surface suggesting that the RBA should start to taper soon. They could also come up with a system that allows them to increase or decrease bond-buying quarterly, depending on certain economic conditions.
Locally in the short term, our market has finally pushed into all-time highs, even though the US has not. A combination of extremely accommodative central banks and strong economic data showing the recovery is well on its way has investors refocused on Australia. Iron Ore rebounding above $200 US a tonne is also helping.
Australian Outlook
The XJO is expected to open near its all-time high which was set Friday and capped off an extraordinary week of gains in the face of a sidewards U.S market. The U.S market Friday night was unable to breach their all-time high, and coupled with the Monday blues, would typically spell a flat to bearish day for us. But, with the recent strength in our market we are clearly acting with our own mind and could therefore continue to push into fresh highs. The drawback of blue skies (though a tremendous problem to have) is that we have no resistance or level to target. It therefore is difficult to predict when the market will pull back.
If we do see a pullback this week, which feels more imminent than not, we would expect 7200 to hold provided the fall was meek and not aggressive. Following that, the clearly defined 7100 level which acted as resistance and recent support would hopefully keep us buoyed. Short term indicators are looking toppy, but this can appear so for a while, and even a small pullback can correct them.
In the more medium term, market sentiment remains vastly positive everywhere you look. Inflation continues to be under heavy consideration, but fear of tapering on spending and low interest rates have largely been dissolved lately. Short term jitters are an axiom of markets and so they come and go, but it is clear that there is a risk on appetite underscoring markets.
US Markets
US shares closed strongly higher on Friday, with the DOW and S&P 500 climbing back to within touching distance of their all-time highs. The NASDAQ rallied particularly strongly as well, but remains a degree off it’s all-time highs from earlier this year. Shares were buoyed by a drop in government bond yields on Friday, though over the weekend Treasury Secretary Janet Yellen expressed her belief that higher interest rates would be beneficial to the US; it will be interesting to see if this has an effect on Markets today.
In Friday’s economic data, US unemployment came in lower than expected, which was good, but it was partly due to a lower participation rate, with nonfarm payrolls coming in lower than expected; leading to a fairly mixed jobs report. Utilities was the only major sector not to close higher on Friday, while Technology and Communications stocks were the strongest of risers.
- US shares tumble as bond yields soar, XJO to drop - February 22, 2023
- US market drops with hawkish Fed comments - February 17, 2023
- US market grinds higher, XJO to follow - February 16, 2023
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