International markets continued to adjust for a 2018 outlook where other central banks join the Fed in gradually reducing monetary stimulus. US stocks were among the casualties with selling pressure on high PE technology stocks leading market declines that saw both the NASDAQ and S&P 500 breaking below recent chart support levels.
While the sell-off in US stocks sets an understandably negative tone for this morning’s open, there are a number of reasons to suggest the decline in our market may end up being less severe. Bank stocks, which are a major component of the Australia 200 rallied in US markets in the belief that rising interest rates will assist profit margins. Further gains in the iron ore price and metal prices may also prevent investors being too aggressive about selling mining stock s today. Finally, fund managers will be hoping that the ASX 200 is not sold too heavily on the last day of the financial year.
With the stock market going into the final day of the financial year in a more volatile mode, today’s release of China’s manufacturing PMI could set the tone for this afternoon’s trading. It will come against a background of solid export growth last month plus recent indications of improved commodity demand.
While US stock indices broke chart support levels last night, the Australia 200 index will not do so today. In fact if today’s session manages to remain above yesterday’s low at 5729, the short term uptrend will remain intact. This leaves open the possibility that the current up trend may yet go on to break above the recent highs at 5841.
Selling of both the US Dollar and bonds in recent days makes markets vulnerable to surprises in tonight’s US consumption and Eurozone inflation data. Bond bears have been consistently thwarted by stubbornly low inflation in recent years. Consensus expectations are not suggesting a lot of encouragement for bond bears tonight with the US core PCE expected to be up only 1.4% year on year and Eurozone core CPI to be up 1%.