Futures markets are indicating a positive start for the ASX 200 this morning which would reverse yesterday’s weakness. However, the overall character of market this week has been one of cautious, sideways drift.
While traders have a watching brief on both Friday’s US employment data and the summit between Donald Trump and Xi Jinping, the US profit reporting season looms as the next major driver of stock market sentiment. Markets appear to be anticipating that consensus analyst profit forecasts will again prove too conservative. US stocks are benefitting from improving economic activity; low wage growth and low interest rates. Another good reporting season could be the catalyst for a push to new highs in US markets, providing a confidence boost for the local market.
The Aussie Dollar was pushed lower by yesterday’s RBA statement which acknowledged that labour market conditions have softened recently. This means that the $A is likely to be very sensitive to employment data over coming months. The next monthly release will be on Thursday 13 April. Ongoing trend labour market weakness would increase expectations that the RBA will cut rates again.
The oil market built on recent gains overnight and this may support the energy sector on the stock market today. However, the recent strength in the oil price does potentially increase its sensitivity to this week’s US inventory data, with a good result likely to be required to maintain momentum.