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The path of least resistance

After a relatively neutral session on international markets, investors may be contemplating whether the path of least resistance for the local market is up.

Ongoing support for CBA could be a positive for the ASX 200 this morning. Yesterday’s buying in CBA could be just the start of a re-rate process that has further to play out. The bank’s quarterly results were a reminder that it is outperforming its peers. Despite its regulatory issues, CBA warrants some valuation premium to the other majors.

Energy stocks, on the other hand, could attract more profit taking today. Oil prices have now risen to the extent that the balance of risk around the upcoming OPEC meeting is to the downside. From current levels, the downside response to anything short of an agreement to extend current oil production ceilings for the balance of 2018 exceeds upside potential if the agreement is extended as anticipated. News that US production has hit a new high for the year serves as a reminder that increased production by the Saudi’s and Russia early next year would put pressure on the market. 

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