US market recovered most of the early sell-down. All sectors except Utilities closed slightly lower overnight, Energy was the standout closing 2.27% lower. Traders took profit as Crude fell back to $60 US from $62. The move higher in the Long term bond yields could be finding a roof here. The selling in the long-term space will likely see money continue to flow towards equities. It is all about timing. Many will be waiting for a small pullback before jumping back into equities. The question is, have we already seen that pullback in the US?
Otherwise not much has changed overseas, the weaker than expected job numbers in the US will fuel the expectations of more stimulus. Biden’s go big Fiscal stimulus will likely be passed in the coming weeks. The FED will remain extremely accommodative for a long time. So even though US markets seem overdone here, with so much cheap money around it is unlikely to see a sizable correction any time soon.
Locally we saw Iron Ore reopen yesterday jumping over 5%, This will help the already good reports from our three big miner BHP, FMG and RIO. Most analysts have predicted Iron Ore to be at much lower levels. Many are expecting $120 US a tonne by the second half of this year. At this stage, it is $175. The record profits the miners saw in the last half of last year on average prices were closer to $100. So if this strength in Iron Ore continues we expect Iron Ore miners to stay strong and rise from here.
Banks reporting is giving us a strong indication of how well the economy has rebounded. Most of the frozen loans have been recovered. The Banks this year will benefit from the steepening of the yield curve which improves their net interest margins. Australian bank is set to recover strongly this year as the housing market continues to boom. The main risk they will face is in March when the Keepers and Seeker allowance is removed.
The XJO is set edge lower on open this morning following a fairly flat night in the U.S. The open should see us in the territory of 6850 – the previous post-fall high that acted as a keen resistance. It is likely we go onto test that this today, and weather we hold it will likely come down to U.S futures and reporting. If U.S futures don’t tick too hard into the red and we don’t see any sector shock from reports then it is likely we hold 6850 and await further direction from the U.S tonight.
Arguments around inflation and bubbles continue to make headlines, perhaps giving markets pause. In recent times, as markets continue to make gains, every month or so these ideas seem to bubble to the top of the media cauldron. It will eventually lead to a crash or correction (the timing of which is near impossible) but until then it is largely best to trade what is shown: the market continues to trade in an uptrend and fiscal and monetary policy remains expansive. This sentiment has pushed markets higher and it is likely to continue to do so.
US shares closed lower overnight, with analysts blaming rising bond yields and the concern that they could lead to higher borrowing costs. It was the third consecutive decline for the tech-heavy NASDAQ index, which has been the strongest performing major US index this year.
Economic data also worried markets, with worse than expected jobless claims and housing starts. We did see an oil inventory read show another big inventory drawdown, but this wasn’t enough to force oil higher, with prices falling after a prolonged period of gains. Utilities was the only major US sector to close higher, while Oil & Gas stocks were by far the weakest performers.