The positive lead from the US profit reporting season, hopes that US tax reform might be achieved by this year after all and a bounce in metals prices, will put sellers on the back foot this morning with the ASX 200 likely to finish the week on a positive note.
US Secretary Steve Mnuchin’s comments on tax reform were well timed. They came as bond buying and US Dollar selling based on the unwinding of the Trump trade appeared to be losing momentum any way. While Mr. Mnuchin’s advice that progress has been made on tax reform will give traders reason to pause, market reaction has been guarded. Given the experience with health reform, markets are likely to wait for more tangible evidence that reform can be achieved and details of what it will entail, before becoming too confident
The ASX 200 is likely to benefit from last night’s bounce in metal prices that should see support for mining stocks today. Last weekend’s solid data on China’s economy including ongoing credit creation and improved industrial production make it difficult to be too pessimistic about this sector.
Traders will also be watching whether a couple of yesterday’s trends can continue this morning. One will be the bargain hunting in Telco stocks with Telstra now approaching the 38.2% Fibonacci retracement level at $4.27. The other is whether confirmation of Amazon’s expansion in Australia will lead to continued selling of retail stocks like Myer and Harvey Norman. The Amazon news has been long anticipated and it will be some time before its expanded business commences operation.
Market optimism may be somewhat curtailed by concerns over Sunday’s French election. However, given the uncertainty of the outcome markets may leave their response until after the result is known.