Australian stock markets wrong footed

After 3 days of concerted selling, the Australian stock market has been wrong footed by a firm lead from US markets. Having outdone US markets to the downside in recent days, the ASX 200 may be about to go into reverse gear, outperforming to the upside this morning.

The US S&P 500 index was up only 0.3% last night but it finished with buyers in charge, closing at the high for the day. The ASX 200 index, by comparison, closed yesterday with sellers in charge and down 2.3% for the week so far.

Overall valuations in both US and Australian stock markets are near the top of recent ranges. This means buyers are likely to remain cautious in coming weeks. This morning though, it may be the turn of sellers to exercise a little caution given that a positive lead from US markets may yet provide more value for them.

Wesfarmers could be a good litmus test for market sentiment today. The stock is down 7% over the past 3 weeks. Investor sentiment toward Wesfarmers has soured somewhat following news of write downs relating to Tagret and the Curragh coal mines. Concerns about the ever improving competitive position of Aldi’s supermarkets against Coles is also worrying investors. However, Wesfarmers share price is now back testing a well-defined chart support for the 5th time since November. Whether or not Wesfarmers can hold this chart support in coming days should be useful litmus for investor sentiment on high yielding blue chip stocks.

All up, the large array of economic data released this week has been pretty constructive both for the global and the Australian economic outlook. Standouts have included a strong rebound in US consumer spending, steady Chinese manufacturing PMI’s and solid Australian building approvals and business credit data.

Unsurprisingly there was no oil market reaction to news that Opec was unable to come to an agreement on production ceilings. The market’s lack of reaction is simply reflects that it attached a zero probability to an agreement being reached in the first place. However, Saudi’s statement that its ambition is to restore the strength of Opec should not be ignored. It suggests that when possible and appropriate, it will move to re- establish an Opec production agreement in future.