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Markets balance conflicting influences

A weak lead from US markets; Italy’s referendum and tonight’s release of US jobs data all provide reasons for the stock market to close the week in cautious, wait and see mode.

However, this caution may be at least partially balanced by ongoing support for those industry sectors benefiting from recent investment themes. 

Support for energy stocks may carry through today as oil prices continue to rise in response to OPEC’s production agreement. Mining stocks should also at least hold firm after an encouraging round of manufacturing PMI data in both the China and the US and a sharp jump in the spot iron ore prices yesterday. Banks may also be supported after another rise in bond yields.

On the other hand another sell off in Australian bonds this morning could see investors continue to rotate out of the “expensive, defensive” sectors such as utilities and real estate investment trusts.

These conflicting trends and rotation between sectors was a feature of trading in US markets last night but resulted in an overall decline in the US SPX500 index, especially given the relatively large weighting of the Information Technology sector compare to the Australian market.

The question for local index traders today may be whether overall caution prior to the US jobs data and Italian referendum outweighs potential buyer interest in banks and resource companies which have a relatively high weighting in the Australia 200 index. 

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