Note from the MD: US market rally spurs on local traders

The US market’s rally continued overnight. The S&P 500 and Nasdaq climbed to year highs, bolstered by new data showing a slowdown in inflation, which in turn boosts hopes the Federal Reserve will leave interest rates on hold this week.

The US market’s rally continued overnight. The S&P 500 and Nasdaq climbed to year highs, bolstered by new data showing a slowdown in inflation, which in turn boosts hopes the Federal Reserve will leave interest rates on hold this week.

Despite a strong open in the US this week, the Aussie markets are still tentative, only seeing moderate gains thus far. Global markets are eyeing stability and could be set to begin a strong surge after investors have finally caught a first glimpse of monetary policy that is designed to heat up the economy – following China cutting short-term borrowing costs yesterday. Copper, of which China accounts for around half of total demand, surged off the back of the news

The Energy sector finished yesterday’s session down more than 1.3% hurt by a drop in global oil prices, which saw Brent crude futures fall 3.9% (13 June), to the lowest level since December 2021. 

Meanwhile, Domino’s Pizza shares fell to a four year low, as the fast food outlet struggles with poor sales figures amid the decline in consumer spending.

Back to the ASX200, and while eight of 11 sectors are higher over the last week (*screenshot4), the Reserve Bank of Australia’s (RBA) future rate decisions continue to loom large over the market.

Yesterday, the National Bank of Australia (NAB) became the latest bank to upwardly revise its cash rate outlook to 4.6%, with inflation and wage data indicating price pressures remain elevated.

The forecast will do little to improve business confidence, which according to the NAB May Business survey fell four index points last month, with most industries now in negative territory.

On a brighter note, China’s decision to go against the global monetary policy grain and cut its short-term lending rate to bolster the world’s second largest economy, is being welcomed by local and global markets alike.

The ASX 200 (XJO) tested its short term support along the 200-day Moving Average (7117). Closing below this MA but never more than for a day, only to rebound above MA and try to push higher where it has failed to break above the 50-day MA. Which has left the index stuck in a consolidation between the two moving averages. 

Despite significant news developments during the week, the implied volatility for the local index, when examined on a 52-week basis, continues to be relatively low, indicated by a rank of 8. This indicates that price movements have been relatively stable compared to historical levels. To capitalize on potential trading opportunities, traders and investors should carefully monitor key support and resistance levels. It’s worth noting that a break below the support level at 6,946 could lead to an increase in volatility.

Given the current range-bound market conditions and the absence of a clear directional bias, it is crucial to approach trading with caution. It is advisable for traders and investors to avoid taking large, unadjusted positions that carry significant risk in either direction.

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Past performance is not a reliable indicator of future performance.

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