Note from the MD: Market on steady footing after Melbourne’s shaky start to the day

It’s tense times in Melbourne right now – not only are police dealing with another day of protests in the CBD, but we also had the earthquake.

It’s tense times in Melbourne right now – not only are police dealing with another day of protests in the CBD, but we also had the earthquake.

In contrast to the chaotic scenes on our city streets, the market looks to be settling down after a sell-off on Monday was followed by an unexpected (albeit welcome) gain.

It probably helps that Australia now has a plan for beating COVID, and conversation has now started to shift to how we prepare Australia for life after the pandemic – just this week, the country’s leading minds on IT and digital technology called for greater investment into digital literacy, technology and infrastructure.

Back to markets. The forecast yesterday morning was for carnage on markets – futures markets were predicting drops as large as 1.4% while newspapers quickly peddled phrases like ‘bloodshed’.

An early drop of 0.65% before 10:30am seemed to suggest these doomsayers were right, but in the end cooler heads prevailed, the market retraced those early losses, and by close the ASX 200 was up 0.4%.

With the market sitting above 7300 we will be watching for a continued rebound in the coming days. However if the market does continue falling we see the next major support level at the 200 DMA. If the market tests this level we expect a quick bounce back. We see the current major resistance at the 50 DMA with two minor resistances around 7340 and 7400.

So what had everyone so spooked yesterday, then? Falls on the Dow Jones and NASDAQ on Monday night certainly didn’t help, with the two indexes down 1.8% and 2.2% respectively.

The S&P 500 also recorded a drop of 1.7% – its biggest since May – as Wall Street’s recent enthusiasm began to give way to hand-wringing over the pace of the recovery.

But it was Chinese property developer Evergrande’s looming collapse that really had investors worried. The company reportedly owns 1300 residential property projects across 280 Chinese cities.

But the scale of its property holdings pales in comparison to the size of its debt – $412 billion owed to more than 240 lenders, all of whom have been warned not to expect payment any time soon.

So what’s that got to do with the price of shares in Australia? Not enough to drive a sell-off on Tuesday, apparently, but enough to raise concerns for Australia’s iron ore industry, which is a major supplier to the Chinese property market (not to mention a major contributor to Australia’s GDP).

Even so, the ASX 200 still notched small gains during the session – as did the Small Ordinaries index, (ASX: XSO) which lifted 0.19% during the day’s trading.

What’s more, many of the XSO’s best performers were miners, with Bellevue Gold (ASX: BGL) and Mount Gibson Iron (ASX: MGX) both up more than 6%.

New Hope Corporation (ASX: NHC) and Champion Iron (ASX: CIA) were close behind them, having both gained more than 4%.

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