Overnight the DOW continued its 7 days run into Blue Skies, as the SP500 finally breaks resistance. We saw buying across most sectors, except Financials and Energy which closed slightly lower. Tech and Discretionary had a good session as Bond yields pulled back.
Janet Yellen Secretary of the Treasury is helping to keep the calm in the Bond space after saying that prolonged inflation is unlikely. Bond yields though could remain volatile coming into Wednesday nights FED meeting as many expect the FED to take no action. There will be a lot of uncertainty coming into this meeting as FED Chair Powell spiked a sell-off a few weeks back when he suggested a temporary spike of inflation is coming.
Locally our market remains whippy and sideways as our big three miners continue to sell-off. It seems many investors are eager to take profit after Iron Ore fell 10% last week. This has seen the rise of a lot of negative press around the price of Iron Ore. Many are expecting it to fall as more supply hits the market from Vale and FMG later in the year. The interesting thing in the short term is that most are expecting Iron Ore to fall in the second half of the year.
Australian Outlook
The XJO is expected to edge higher on open this morning following positive move sin the U.S overnight and the SP500 moving into fresh all-time highs. It would be reasonable to suggest that our market should be heading back towards 6950 (by the very least) as U.S markets once again make new highs, though we have been disappointed in the past. This morning’s open doesn’t give much confidence. In all fairness, last nights move in the U.S was just a teaser, and if they continue to make good headway our market is highly likely to follow suit.
The supressed AUD should help keep our miners buoyed against flat to falling commodities.
Outside this, markets might be quite until the Fed speaks Wednesday.
US Markets
US shares were mostly higher overnight with all three major indices closing in the green. The Dow continues to create further all-time highs. The pushed through recent resistance also into all-time highs, as the Nasdaq breaks the short-term downtrend and edges higher.
Bond yields calmed off as Janet Yellen reconfirm investors that any inflation from the stimulus will be temporary. The more Central banks and Governments inject money into the system the more likely we will see inflation go back up. All in all, though it only becomes a major issue when inflation rises above central banks targets of around 2.5%. This is not yet the case, so what we will likely see here is the market has small corrections if bonds yield continues to move as they have recently.
So, it will be all eyes on the FED Wednesday night to see if they send the market any hints on further yield control. It will likely be inevitable to see more yield control if Bonds continue to sell off strongly.
Technically, the S&P 500 has now broken higher, which will likely lead to further upward movement. Often, we do see the resistance tested as support a few times before it keeps going. Many of our short-term indicators are starting to look a little overdone, but with the recent stimulus news, there could easily be more in this move. The break of the Flag last week suggests that the SP500 upside target is around 4,068.
Tim Michaelides is the Head Trader at Emerald Financial Group.
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