Early indications are that the stock market will end the week with a positive session. Markets had a solid lead from the US; those stocks benefiting from a weaker Aussie Dollar may attract support and base metals had a firm session which should see the materials sector hold up relatively well today.
The net result of a recovery today would be a relatively neutral week for the Australia 200 index. This partly reflects that trading this week has been largely characterised by traders switching between industry sectors rather than taking a directional view.
Markets have arrived at a point where they need to weigh the risks of being caught by out by the potential stimulatory impacts of the Trump Administrations policies against the risk of being caught by those policies not being implemented.
This dilemma was highlighted by overnight news. Core CPI growth in the US remains moderate vindicating the current Fed stance of a gradual approach to monetary tightening, especially given the tightening impacts of recent increases in bond yields and the US Dollar. However, as Janet Yellen pointed out in her testimony, this would change if there is a big boost to fiscal stimulus. The Fed is likely to look to counter balance the potential inflationary impact of US fiscal stimulus by raising interest rates faster.
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