Yesterday’s open should have come with a warning for those with weak hearts to look away.

The benchmark ASX 200 index (ASX: XJO) spent the first 18 minutes of trade in freefall, breaking below 7000 for the first time since March and losing as much as 2.5% at its lowest, before retracing some – but not all – of the sell-off.

The heart-stopping drop and subsequent close (down 69 points) followed similar downward pressure in the US, and marked the third day of losses for the local bourse.

Maybe it’s unsurprising then to see business confidence – measured by NAB – has also dropped recently. Data for April shows businesses are feeling less certain about their future, although they remain positive overall.

NAB’s survey also found the proportion of businesses that did not need to take out credit during the month dropped, from 58% to 55%. While NAB didn’t provide too much detail about the drop, I wouldn’t be shocked if it turned out to be to cover their cash flow as inflation pushes up prices.

There’s now mounting suspicion that inflation will put an end to the record levels of retail spending Australians have done so far this year.

Yesterday’s ABS figures showed a 1.2% increase in sales volumes during the March quarter, which followed a 7.9% jump in the December quarter and helped drag retail sales volumes to a record high.

Last week, we heard RBA governor Philip Lowe caution that many firms are now prepared to pass their cost increases on to consumers and with mortgages on the rise, consumer confidence has dipped to 20-month lows.

But that was yesterday; what about today?

With the market opening relatively flat we may see some support over the coming days, however the direction over the mid term could still go either way or neither way. The 7000 level is a strong psychological level and with an election on the horizon plus a high degree of geopolitical tensions and uncertainty, the market could cling to these important psychological levels. 

The XJO had pulled back considerably during yesterday’s open, which invited the buyers back into the market resulting in a sizeable retracement of much of the session’s early losses. The major supports in the current market are the 7000 level, followed by the 6940 level. Resistance is sitting around 7130, then 7200.

We’re now only a few days from the federal election too, with the next leaders’ debate scheduled for tonight.

Betting markets have Anthony Albanese looking like our next prime minister with odds of 1.40 compared with Scott Morrison and the Coalition at 2.90 when I checked last night, supporting what the latest newspoll figures have already suggested.

While both of those numbers are good bellwethers, if the last federal election (and indeed Donald Trump’s surprise win in 2016) have taught us anything, it’s that no political outcome is a sure thing.

At any rate, the economy has become an important battleground for both major parties and I’m sure we’ll be seeing some more policies drop in the coming days that will have implications for markets, not to mention the politicking we’ll no doubt see around the edges.

We have an upcoming webinar with Propell Holdings Limited (PHL), a rapidly growing SME lender disrupting traditional banks with its focus on fast, simple credit approval. The company has exponentially grown to ~1700 clients (more than 420% in the past year, with ~3400 targeted by late 2022) off the back of its innovative, digital-first solution. 

Propell’s CEO Michael Davidson will join us Friday, 13th May, at 12pm (AEST) to share his insights into SME financing and the company’s plan to capture a growing share of Australia’s total $423 billion SME loan book. Click here to attend.