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US earnings can't be ignored

US stock markets tend to be a sentiment leader for world markets and in what’s become a familiar pattern over recent years, the quarterly profit reporting season is supporting that sentiment.

Around a third of companies in the S&P 500 index have now reported and overall earnings are ahead of consensus forecasts. The financials and technology sectors in particular are doing better than expected with Microsoft’s result this morning being a good example.

The fact that US stock indices like the S&P 500 and Dow Jones have broken clear of recent resistance is a useful indicator of market sentiment. Given full valuations, the break to new highs probably doesn’t imply that markets are about to embark on another, sustained, high momentum move to the upside like we saw after the US election. However, the move to new highs does tell us that sellers are now looking for higher levels given current circumstances; suggesting US markets will be a positive influence for local markets for a while yet.

Profit taking in the major mining stocks proved a headwind for the ASX 200 index in early trading today. However, this is being offset by support for banks which has seen the Australia 200 CFD bounce of its 38.2% Fibonacci level after an early dip.

 The key question for the next few days may be how quickly bargain hunters step back into mining stocks given relatively strong commodity prices and the ongoing improvements in productivity revealed by the miners’ latest production reports plus the focus on quality assets typified by Rio’s sale of its thermal coal operations.  

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