Precautionary book squaring ahead of the long weekend and looming risk events is likely to see the stock market finish the week on a soft note.
The market has a number of potential risk events before it. Chief amongst these is the Brexit vote on 23 June. Now only 2 weeks away, the Brexit vote is likely to impact trader behaviour in the broader risk markets like equities and commodities.
The release of China’s economic data for May is also due for release on Monday when the Australian stock market will be closed. The data is unlikely to be far outside expectations but if it is, stock market traders will be unable to react until Tuesday.
The bounce in the US Dollar last night suggests that markets have now completed the adjustment for reduced expectations on the pace of Fed rate hikes. Unless further signs of US economic weakness emerge, the US Dollar is likely to hold above its early May low. The Fed is still expected to lift rates this year and the risk to economic data remains two way. A rebound in the US labour market and improvements in inflation data on the back of stronger commodity prices may yet deliver a faster pace of Fed tightening than currently anticipated.
Energy stocks may see some profit taking today after a good week. Softer overnight oil prices and a stronger $US have combined to create some short term risk in this sector.
It will be a nervous start for shareholders in packaging group, Amcor this morning. The market was sold off when the company announced it will write off the value of its plastic manufacturing business in Venezuela. One aspect of this write off for shareholders is that it has been caused by Venezuela’s political and economic circumstances and is not a reflection of operational or management issues. . Amcor has owned the Venezuelan business for a long time. Global reach plus exposure to growth in emerging markets is one of the company’s attractive features. However, as this situation clearly demonstrates, there’s risk as well as growth opportunity in emerging markets. The severity of yesterday’s sell off in Amcor also reflects the fact that the stock had been priced for perfection.