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Optimists in short supply

Mining stocks and Real Estate made rather an odd couple as the only market sectors to be in the black after 15 minutes of trading this morning. However, it was a short romance. Real Estate was soon left as the only sector in positive territory.

While investors began the session responding to overnight gains in commodity prices and a robust round of economic data from China yesterday, the materials sector has now been weighed down by selling in Rio Tinto following release of its production report.

The minor downward tweak in Rio Tinto’s iron ore shipping guidance for 2017 is due to its rail maintenance program and is a temporary factor in an otherwise solid production report that should not pose too much concern for investors.  

The overall index is now well in the red as a stronger $A weighs on the outlook for exporters and companies with significant offshore assets.

Investors are seeking value in the real estate sector after the concerted sell off of recent weeks. While concerns remain about the medium term outlook for residential property, the overall sector is attracting support as investors focus on a lower for longer scenario for interest rates. A combination of stubbornly low inflation and a resurgent Aussie Dollar is changing the outlook on rates and beginning to make yields in this sector look more attractive.

China’s solid round of economic data creates a supportive environment for the Aussie Dollar over coming months. However, in a classic case of buy the rumour, sell the fact; the Aussie failed to move clear of resistance at its April 2016 peak around 78.35 as profit taking set in. This level now becomes an even more significant sentiment indicator as traders wait on Thursday’s employment data for Aussie Dollar direction.

CSL which is one of the index heavy weight with a negative exposure to a stronger $A ,is again falling towards chart support just above $129. A break of this support could have negative implications for sentiment. 

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