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Firm opening belies a brittle mood

Firm commodity prices and a stable lead form US markets have combined to deliver a firm opening for the ASX 200 index this morning.  However the market mood remains brittle, with the US Dollar and bond markets continuing to correct the big moves that followed the US election.

Markets tended to concentrate on the Trump Administration’s stimulus plans while discounting its trade protection plans in the period between the election and inauguration. In fact, the first couple of days of the new Presidency have seen the rhetoric weighted toward protectionist policies with little detail yet available on stimulus measures.

Unwinding free trade agreements and imposing border taxes is seen by markets as a negative for the US Dollar which is not being helped by statements from the US Treasury Secretary about it being overvalued.

Bank stocks may hold the key to how the ASX 200 ends up performing today.  Downward momentum and profit taking has been quite strong in this sector.  By yesterday, the CBA was down 4.4% on its peak a little over 2 weeks ago. There has been little outside margin expansion to improve the earnings outlook for Australian bank stocks recently and investors have been looking elsewhere for value given the recent run up in prices.  A move below yesterday’s low in CBA would signify ongoing weakness. A minor rally today may indicate no more than an indecisive pause in the recent downtrend unless the stock can clear yesterday's high at $82.60

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