ositive news on China’s exports, prospects for a very small tapering initiative by the Fed and reaction to the election, all supported a firm opening this morning.
Markets will be encouraged by weekend news that China’s exports increased 7.2% in the year to August. This follows a steady flow of figures in recent weeks indicating that overall economic growth in China is forming a base above 7% which is a relief in the context of earlier concerns that growth rates may have been sliding below this level.
Weaker than expected US jobs growth in August and a significant reduction to July’s figure has seen markets wind back optimism on the US labour market. Average jobs growth in recent months has now been around 150,000 compared to the 200,000 run rate previously assumed. This adds to concerns that the increase in bond yields and mortgage rates over the past couple of months is already having some negative impact.
Markets have wound back expectations for the Feds tapering programme and this is supporting international equity markets. Taper Light now looks the most likely alternative with the Fed making a very modest reduction in asset purchases at its meeting next week and then adopting a wait and see stance before making further cuts.
It will be difficult to unravel the influence, if any, that the election result has on markets from other positive influences. To the extent that political uncertainty has been seen as a dampener on small business and consumer confidence, a coalition victory may provide a boost in a low interest environment.
However, the Senate result creates uncertainty over whether the government will be able to achieve some of its legislative programme, especially the removal of the carbon trading scheme. An ongoing trend away from the major parties and towards smaller parties increases the risk to the government of calling a double dissolution, where the quota required for a Senate position is smaller.
The market has made little progress since early August and price action since then has been relatively choppy. In technical analysis terms this loss of momentum is consistent with a consolidation pattern. The current pattern is quite large with a range of around 200 points in the Australia 200. Support may be provided by a trend line across recent lows and the 50-day moving average at around 5045/65.
Resistance may be provided by a trend line across recent peaks and the May high at 5225/5251.