S&P/ASX 200 Fundamental Analysis – August 31, 2016 – Forecast

The S&P/ASX 200 closed higher on Tuesday after the previous day’s sharp break. While Monday’s weakness was fueled by a reaction to external factors such as the hawkish comments from Fed officials last Friday, today, the index was supported by higher traditional, domestic sectors such as Gold, Metal & Mining and Healthcare.

Strong gains by Austral Ltd (AX: ASB), Ramsay Health Care Ltd (AX: RHC) and Select Harvests Ltd (AX: SHV) helped underpin the S&P/ASX 200. At the close, it was up 0.31%.

Helping to put a lid on the rally were Gateway Lifestyle Group (AX: GTY), Estia Health Ltd (AX: EHE) and Mesoblast Ltd (AX: MSB).

According to Sydney Stock Exchange Data, advancing stocks outnumbered falling ones by 592 to 470. 330 stocks ended up unchanged.

Australian Stocks
S&P/ASX 200 Index

There wasn’t much movement in the U.S. equity indices on Tuesday with the major players on the sidelines ahead of Friday’s U.S. Non-Farm Payrolls report and Monday’s U.S. Labor Day holiday. Some traders feel there won’t be any reaction to the U.S. jobs report until next week when investors return from the long holiday week-end.

Even before the U.S. jobs report, S&P/ASX 200 traders will get the opportunity to react to the latest manufacturing PMI data from China, early Thursday. At nearly the same time, Australia will release its latest retail sales report.

The direction of the S&P/ASX 200 on Wednesday will likely be determined by how investors feel about the chances for a Fed rate hike. Prices could continue to drift higher if they feel the Fed will leave rates unchanged in September, but they could be capped if the odds of a December rate hike remain steady or increase.

The most volatile stocks over the near-term are likely to be bank and mining related. Banks and mining stocks could benefit if Friday’s jobs report comes out weaker-than-expected and the Fed keeps rates unchanged. Those stocks should weaken if the odds of a Fed rate hike increase as well as the U.S. Dollar.

S&P/ASX 200 Fundamental Analysis – August 30, 2016 – Forecast

The S&P/ASX 200 posted a negative close on Monday as traders reacted to Friday’s hawkish Fed comments and a disappointing Australian earnings season. The index broke below the psychological 5500.00 level on Monday, closing at 5469.2, down 46.3 or -0.84 percent.

A stronger dollar led to lower commodity prices which also encouraged investors to sell mining and natural resource stocks, driving down those sectors.

Early in the session, the ASX 200 felt pressure from comments made by Fed Chair Janet Yellen and Fed Vice Chair Stanley Fischer on Friday. Yellen thought the case for an interest rate had strengthened, however, her tone did not indicate that a rate hike was imminent. Fischer, however, was hawkish, saying that two rate hikes in 2016 were possible.

Australian Stocks
Daily S&P/ASX 200 Index

Traders were disappointed with domestic stocks because of weak revenue growth, slower cost cuts and lower pre-tax margins.

On Tuesday, ASX 200 traders are likely to react to the movement in U.S. interest rates, U.S. stock indices and the direction of the U.S. Dollar since there isn’t much domestic data this week. The key report this week from the U.S. is Friday’s Non-Farm Payrolls report.

Higher U.S. interest rates will be supportive for the U.S. Dollar. This will also serve as an indication that a Fed rate hike in September is still in the cards. As recently as Friday, Fed Fund futures indicated there was an 18 percent chance of a Fed hike next month. That percentage rose to 30 percent early Monday.

Early losses by the ASX 200 can be expected, but they will be limited because of the higher close by the benchmark S&P 500 Index.

Today’s price action is likely to be the most volatile as many investors will start to pack it in ahead of Friday’s U.S. jobs report.

US Dollar Holds Fed Inspired Gains

Asian markets are responding to Federal Reserve speeches and US data released on Friday. Asian markets were closed when Janet Yellen addressed the Jackson Hole symposium as well as Stanley Fischer 2nd hawkish speech. Japan’s Nikkei climbed 2.3 percent, the biggest one-day gain in three weeks, as the yen weakened against the resurgent dollar. The surge in the US dollar helped the safe haven yen climb to 102.37 easing the burden on Japanese exporters. China’s  and Shanghai Composite both saw losses. Hong Kong’s Hang Seng eased 0.3 percent.

equities monday morning

Wall Street closed slightly down after a volatile session on Friday, having moved between gains and losses as traders debated the likely timing of a U.S. interest rate hike following comments from top Federal Reserve officials.

The S&P 500 climbed after Yellen made the case for raising rates had strengthened but did not indicate when the Fed would act but gave traders an idea that rate increases would be later than soon. Yellen told bankers in Jackson Hole, the U.S. economy was nearing the central bank’s goals of maximum employment and price stability but that future hikes should be “gradual”.

Equities later traded lower after hawkish comments from Fed Vice Chair Stanley Fischer raised the possibility of a rate hike as soon as next month.  Fischer indicated that rate increases in September and December remained in play.

Reuters reported comments by the Fed’s No. 2 policymaker, Vice Chair Stanley Fischer, following Yellen’s speech also bolstered the case for a hike this year. Asked on CNBC whether a rate hike in September and more than one policy tightening before year-end should be expected, Fischer said Yellen’s comments were “consistent with answering yes” to both questions, albeit still data-dependent.

This increased the importance of the August nonfarm payroll report due on Friday. The NFP is expected to show that the economy created 180,000 jobs this month after rising by 255,000 in July, according to a Reuters poll. The forecast is for the unemployment rate to fall to 4.8%

labor market

Other data this week includes personal consumption on Monday, consumer confidence on Tuesday, and car sales and factory activity on Thursday. For more economic data this week.

The reaction to Yellen and Fischer were positive for the greenback. The dollar index which tracks the greenback against six global peers, jumping 0.8 percent on Friday. It held steady at 95.56 on Monday.

The dollar surged 1.3 percent against the yen to a two-week high, its biggest one-day advance in almost seven weeks. It extended those gains by 0.3 percent to 102.37 yen this morning.

Japanese traders will closely monitor household spending and retail sales data for July due on Tuesday. Investors are looking for some indication that Prime Minister Shinzo Abe’s massive Three Arrow plans are having an effect, after figures on Friday showed a decline in consumer prices by the most in three years in July.

The euro is trading flat at $1.1193 after tumbling 0.8 percent it regained most of its losses. The kiwi and the Aussie both dipped this morning on the strength of the US dollar. The AUD is trading at 0.7551 with the NZD at 0.7237

S&P/ASX 200 Fundamental Analysis – August 29, 2016 – Forecast

A weaker close on Wall Street on Thursday drove the S&P/ASX 200 lower on Friday with few investors willing to step in front of the market ahead of Friday’s key speech by Fed Chair Janet Yellen. The index closed at 5515.50, down 25.50 points or 0.48 percent. For the week, the index lost 11 points.

Besides the reaction to the lower U.S. indices, weakness in the major banks tied to a decline in the REITS sector also weighed on prices. The best performing group for the session was the telecoms.

U.S. stock indices were mixed on Friday as investors evaluated the comments from Fed chair Janet Yellen and Vice Chairman Stanley Fischer. The indices posted a volatile two-sided trade as investors tried to figure out if the tone of her comments was hawkish or dovish.

Yellen essentially said the economy had strengthened and suggested a rate hike was still data dependent. Most traders concluded that she offered nothing new and that a rate hike was not imminent.

The biggest reaction by the markets and the one that triggered the sell-off in the equity markets were made by Fischer. He said two rate hikes were possible. The U.S. Dow Jones Industrial Average contract close about 50 points lower. The benchmark S&P 500 about 0.15 percent lower and the NASDAQ composite finished at 0.13 percent higher.

S&P/ASX 200 Index
Daily S&P ASX 200 Index

 

Given the negative zone at the close, investors have to expect a lower opening by the S&P/ASX 200 on Monday. The week is filled with several key reports from Australia and the U.S. with the major report the U.S. Non-Farm Payrolls.

Traders are looking for the report to show the economy added 186K jobs in August. Unemployment is expected to decline slightly to 4.8%. Average hourly earnings are expected to show a drop from 0.3% to 0.2%. A blockbuster number may give the Fed the fire power to raise rates twice before the end of the year. Meeting the estimate or coming in below the estimate will likely take a September rate hike off the board.

In Australia, investors will get the opportunity to react to the latest data on Building Approvals on Tuesday, and a speech from RBA Assistant Governor Debelle on Wednesday. The week comes to an end with an Australian Private Capital Expenditure report and Retail Sales on Thursday.

Look for a lower trade today as Australian investors are expected to react negatively to the comments from Yellen and Fischer.

S&P/ASX 200 Fundamental Analysis – August 26, 2016 – Forecast

The Australian Stock market ended lower on Thursday despite strong performances from a couple of major companies. Traders seemed to ignore the solid rallies by Woolworth and Amcor, instead, choosing to focus on the weaker U.S. equity indices. The S&P/ASX 200 spent most of the session treading water, closing at 5541.90, down 20 points or 0.4 percent lower.

A steep drop in gold prices weighed on commodity and resource stocks. Gold mining stocks were also under pressure. The weakness was triggered by a rally by the U.S. Dollar. The Greenback rose on speculation that Fed Chair Janet Yellen would deliver a hawkish speech before a group of central bankers at Jackson Hole, Wyoming on Friday.

S&P 500/ASX 200 Fundamental Analysis
Daily S&P ASX 200 Index

A drop in crude oil prices also dragged Australian energy stocks lower on Thursday. However, Woodside Petroleum bucked the trend by posting a solid gain despite a 3 percent slide in crude prices triggered by a surprising rise in U.S. stockpiles earlier in the week.

We’re not expecting too much movement in the S&P/ASX 200 on Friday as investors express caution ahead of Yellen’s speech. Traders will be watching Yellen’s comments for clues as to the timing of the next Fed rate hike. Investors expect her to acknowledge the strengthening economy, reiterating the message from the last Fed meeting in late July.

Look for stocks to break sharply if Yellen’s comments lean toward a possible rate hike in September. Stocks may also feel pressure if she leaves a possible rate hike on the table for 2016. However, the reaction will not be as strong as if a rate hike was imminent.

Look for a sideway, rangebound trade today with a slight bias to the downside. Investors aren’t likely to move the S&P/ASX 200 too much since there aren’t any economic reports from Australia or Asia and with the possibility of a volatile reaction to Yellen’s comments. I expect most major investors to sit on the sidelines and use the week-end to digest the Yellen speech and save their reaction until Monday.

S&P/ASX 200 Fundamental Analysis – August 25, 2016 – Forecast

The S&P 500/ASX 200 Index closed at 5561.70 on Wednesday, up 7.90 or 0.14%. Gain were moderate amid mixed profit results. Trading results were mixed with stocks posting earnings struggling and stocks without earnings attracting buyers.

Gains were spread among the big mining stocks, energy companies and banks. The biggest gain for the day was posted by Quantas. It was up 1.5% to $3.45. The move was supported by a billion-dollar net profit and the announcement of a 7-cent a share dividend, its first payout to shareholders since 2009.

Losers included Wesfarmers, with an 83 percent profit slump amid a slew of asset write-downs. Its shares were down 2.2 percent at $42.63. Boral’s shares also tumbled more than 4 percent to $6.92. Blackmores’ shares dropped 19.5 percent after issuing a sales warning. Its stock fell to $129.50 despite a 115 percent rise in net profit.

Daily S&P ASX 200 Index

In the real estate sector, McGrath was up about 6 percent on strong profits, and the news that its founder and biggest shareholder John McGrath is stepping down as chief executive.

Thursday’s session is expected to see similar price action. The lack of fresh economic news from Australia is helping to keep the volatility down. Investors have also been a little tentative due to earnings season.

Additionally, investors are keeping an eye on the U.S. with Federal Reserve Chair Janet Yellen on schedule to give a speech before the central bankers’ symposium in Jackson Hole, Wyoming on Friday.

Traders will be watching for clues as to the timing of the next Fed rate hike. Generally speaking, global stock indices have been supported since early July by the injection of new stimulus. However, recently the indices have drifted sideways-to-lower due to lower demand for higher-risk assets. Hawkish comments from Yellen could put further on the S&P 500/ASX 200 Index as well as the other major global indices.

We’re expecting to see more sideways price action today as we finish earnings season in Australia. If there is going to be volatility, it is likely to come from the energy or natural resource sector. Prices could be particularly sensitive to the price action in gold and crude oil in particular.

Gold has been feeling pressure from the stronger U.S. Dollar and crude oil has seen a choppy, two-sided trade recently. The bearish price action has been fueled by low demand and growing supply. The bullish price action by expectations that OPEC and Non-OPEC are close to agreeing to production cuts or a production freeze.

S&P/ASX 200 Fundamental Analysis – August 23, 2016 – Forecast

The S&P/ASX 200 Index drifted lower on Monday, finishing at 5515.10, down 11.60 or -0.21%. Most of the weakness was attributed to a general lack of demand for higher risk assets ahead of this week’s central bankers’ symposium in Jackson Hole, Wyoming. The keynote speech will be delivered by Fed Chair Janet Yellen on Friday.

As we near the end of summer, many major investors have become content with the direction of the global equity markets so we expect to see a drop off in volume and volatility unless there is a sudden news event.

Also contributing to the weakness in the S&P/ASX 200 index were losses in the gold, metals & mining and resources sectors. These sectors lost ground because of a stronger U.S. Dollar. The dollar was boosted by hawkish comments from a high ranking Fed official over the week-end.

ASX 200 Index
Daily S&P ASX 200 Index

On Sunday, U.S. Federal Reserve Vice Chairman Stanley Fischer said he saw reasons for a near-term interest rate hike. Mr. Fischer, the Fed’s second-highest ranking official, told a crowd in Aspen, Colorado, the central bank is close to hitting its targets for U.S. employment and inflation.

“Looking ahead, I expect GDP growth to pick up in coming quarters, as investment recovers from a surprisingly weak patch and the drag from past dollar appreciation diminishes,” he added.

Additionally, Fischer said that core inflation is “within hailing distance” of the Fed’s 2 percent target and that employment had increased “impressively” since its bottom in 2010.

His comments encouraged investors to sell dollar-denominated commodities including gold, which in turn put pressure on gold stocks. A 3 percent decline in crude oil futures also contributed to the weakness in the ASX 200.

As far as individual stocks are concerned, Fortescue Metals dropped 2.4 percent to $4.81 despite the iron ore miner more than tripling its annual profit and pumping up its dividend. The minor said cost and spending cuts have more than offset the drop in iron ore prices, helping profits soar to $US985 million after tax.

On Tuesday, traders will hear from Oil Search, Scentre Group and Healthscope on Tuesday and Westfarmers, Boral and Westfield on Wednesday.

Economic news is scarce this week so investors are likely to remain sensitive to any outside news especially if it effects metals and other natural resources. Early Tuesday, investors will get the opportunity to react to Conference Board’s Leading Index.

Low volume and thin trading conditions could lead to further pressure on the S&P/ASX 200 since it appears investors aren’t willing to step in on the long side ahead of Yellen’s speech on Friday. Even good news from a few stocks on Monday couldn’t turn the trend to up. With momentum pointing lower, it isn’t going to take much negative news to pressure the index lower. On the other hand, it will take a major surprise to turn the momentum to up.

S&P/ASX 200 Fundamental Analysis – August 22, 2016 – Forecast

If S&P/ASX 200 traders take their cue from Friday’s lower close in U.S. equity markets then we could see a weaker opening on Monday. With little fresh economic data this week, investors are likely to take direction from a slew of earnings reports from heavyweight companies such as Woolworths, Westfarmers, South32 and Westfield. The coming week is the biggest of the August profit season, with 87 major companies due to report.

As of Friday, close to half of listed Australian companies have already reported earnings. Unfortunately, the news wasn’t all that positive. Overall profits are down about 8 percent in financial year 2015-16. Traders blame the weakness on poor earnings from resource stocks which were dragged down by falling commodities markets.

As far as earnings are concerned this week, the important ones include Fortesque on Monday, Oil Search, Scentre Group and Healthscope on Tuesday and Westfarmers, Boral and Westfield on Wednesday.

The week ends with earnings reports from Woolworths, Amcor, Perpetual and South 32 on Thursday and Harvey Norman and Coca-Cola Amatil on Friday.

Australian Stock Market
Daily S&P ASX 200

Economic news is scarce this week with the Conference Board’s Leading Index and Construction Work Done on-tap. The latter will help economists get an idea of how the domestic economy has performed over the three months to June.

The rest of the week will be dedicated to the gathering of central bankers in Jackson Hole, Wyoming with all eyes focused on U.S. Federal Reserve Chair Janet Yellen, who is scheduled to deliver a speech on Friday evening. Traders don’t expect Yellen to offer any inside into the timing of the next Fed rate hike.

The theme of the symposium is “Designing Resilient Monetary Policy Frameworks for the Future”. The topics of discussion are likely to be about the effectiveness of extreme monetary policies, including negative interest rates and quantitative easing. Some will argue that they forms of stimulus have done nothing to spark economic growth and inflation. Instead, they are overinflated financial assets.

While earnings will be the main market driver this week, traders will also be paying close attention to the direction of the Australian Dollar. It has been driven higher lately by investors seeking yield. The buying has been so strong that it has even offset the effects of the last Reserve Bank of Australia interest rate hike on August 2.

Some traders believe the Australian Dollar has room to the upside before its strength begins to exert a negative influence on Australian exports and hence the economy. However, another rate cut by the RBA and a rate hike by the Fed before the end of the year, will likely put a cap on the Aussie Dollar and likely fuel a break back into the .7300 area.

Look for a lower opening based on a general decline in demand for risky assets. However, if investors decide to shed the influence of the global stock markets then the direction of the S&P/ASX 200 will likely be determined by the strength or weakness of the key earnings reports.

S&P/ASX 200 Fundamental Analysis – August 19, 2016 – Forecast

The S&P/ASX 200 posted a lower close on Thursday, finishing down 0.5%. The index remains range bound so although a 0.5% loss should be considered relatively modest, it represents the index’s biggest decline in a week.

The current trading environment is being dominated by earnings. The numbers have been mixed and the gains and losses in the index seem to be flip-flopping between the major sectors on a daily basis. This type of price action has been largely responsible for the sideways movement. On the positive side, support has been holding.

Some will then argue that the tops have also been holding. This is also true because if they weren’t, we wouldn’t be in a range. Valuation issues in the global equity markets may be responsible for the ASX 200’s inability to smash through the resistance and into new high territory.

Fresh Central Bank Stimulus Supportive Over Long-Run…

The international picture remains quite bullish with interest rates at historical lows and a few central bank providing fresh stimulus including the Bank of Japan and the Bank of England. Their moves have green-lighted the next rally while giving permission to long-term investors to hang on to their positions while the market currently sorts out short-term valuation issues.

Domestically, the Australian Dollar is struggling this week after the Reserve Bank’s interest rate cut on August 2 and the RBA minutes which suggested another rate cut is coming. The recent run-up in the currency was fueled by foreigners seeking higher-yields. So although money was flowing into Australia, it was primarily moving into the Aussie bond market. Equity markets took a backseat to this fresh asset allocation, adding another reason for the recent sideways price action.

But Investors May Be Worried About Valuations

The questions being raised about the ASX 200 at current price levels is similar to questions being raised in Asia, Europe and the US. Investors are questioning whether is it prudent to continue to chase stocks higher because of the free-flow of money from the central banks.

This week’s price action suggests that investors may be realizing that valuations may be off the charts, and that value may be more important. Furthermore, with the emphasis on earnings this week, perhaps investors are choosing to avoid the urge to buy stocks simply because they are the only asset class paying a decent return, and instead, are shifting their focus back to traditional valuation analysis.

Australian Stocks
Daily S&P ASX 200

Forecast

Miners and energy stocks could dominate the trade today due to the strong gains in the global crude oil market. The price action in crude oil suggests that the commodity has begun a new bullish leg higher after a 10-week decline. Although U.S. stockpiles remain at or near historical price levels, investors have shifted their focus from the “now” and into the “future”.

The catalyst behind this week’s gains in crude oil has been speculation that Saudi Arabia and Russia are going to agree to a production freeze that would help the smaller-producing nations. This decision may not come for over a month when OPEC next meets, but the story has been strong enough to scare commodity and hedge fund money managers to aggressively cover their short positions that stood at record levels about three weeks ago.

Today, we’re going to monitor the price action in the energy sector to see if rising oil prices are impending valuations.

 

 

 

S&P/ASX 200 Fundamental Analysis – August 18, 2016 – Forecast

S&P/ASX 200 Fundamental Analysis – August 18, 2016 – ForecastThe S&P ASX/200 was set to open flat after a tumultuous day on Wall Street. Wild price swings in the U.S. equity indices after the release of the U.S. Federal Reserve minutes from its July meeting could set a volatile zone in the Australian share market.

After an unpredictable start, conditions are likely to calm as investors shift their focus back to domestic jobs data and a slew of corporate results.

While investors will likely be focused on the July jobs data early in the session, the direction the rest of the day will likely be driven by earnings results, like they have been since early in the month.

Australian Stock Market
Daily S&P/ASX 200 Index

The main market drivers this week have been natural resources stocks such as BHP Billiton, which reported a record loss on Wednesday and banking sector stocks, which are closely tied to the direction of interest rates.

Today’s earnings will be spread among several sectors with earnings coming from Tatts Group Limited (ASX: TTS), a wagering, lottery and gaming industries stock and Origin Energy Ltd (ASX: ORG) along with Brambles Limited (ASX: BXB), a supply-chain logistics group and AMP Limited (ASX: AMP), a financial services company.

Investors will also get the opportunity to react to the Australian Employment Change and the Unemployment Rate reports.

The Employment Change report will tell investors the change in the number of employed people during the previous month. A number greater than the forecast is good for the economy and the currency. It is expected to show an increase of 10.2K. The previous reading showed a 10.8K gain. It has been known in the past to be quite volatile.

A number substantially greater than the 10.2K estimate will likely underpin the S&P/ASX 200 index, but not necessarily fuel a strong rally because of the large numbers of earnings report.

The Unemployment Rate report is the percentage of the total work force that is unemployed and actively seeking employment during the previous month. A number less than the forecast will actually be good for the economy and the currency. It is expected to come in at 5.8%, equaling June’s reading of 5.8%.

In summary, several factors will influence the S&P ASX/200 price action today and at various times. We could see a flat opening as investors try to digest the Fed news from the U.S. and its impact on the Australian Dollar. Secondly, we are likely to see a short-lived reaction to the Australian labor market news. Thirdly, and most important, investors are likely to react more to the large numbers of earnings reports.

The number of ways we can combine the major influences today and the wicked swings on Wall Street suggest that investors should brace for volatility especially because of the growing divergences in monetary policy between the Fed and the Bank of Australian. Ultimately, the direction of the index over the near-term will be determined by whether investors decide today is going to be “risk on” or “risk off”.

S&P/ASX 200 Fundamental Analysis – August 17, 2016 – Forecast

The S&P/ASX 200 Index slipped about 0.14% on Tuesday, finishing at 5532.00 or up 7.96 points after early session weakness in commodity markets pressured prices. The index was also pressured by lower trading in Asia and a stronger Japanese Yen. The strong Yen meant Tuesday was going to be a “risk off” day and investors traded accordingly by booking profits and adjusting positions after a recent rally in the global equity markets.

Helping to lift the Yen and pressure stocks was external news from the United States. Traders reacted to a paper released by Federal Reserve Bank of San Francisco President John Williams said U.S. central bankers should either raise the U.S. Fed’s inflation target from the current 2%, or move to a new target based on price levels or economic growth. Investors reacted as if the Fed would get more wiggle room to keep rates at current levels.

Another external factor pressuring the index was a report from Japan that revealed disappointing gross domestic-product data for the April-June quarter. The report showed GDP at 0.2%, below an expected 0.7% expansion.

Domestically, gains in Australian energy and natural energy shares were offset by weakness in financials and discretionary stocks on Tuesday. The direction of the energy and financial sectors basically flip-flopped the previous day’s movement.

Some of the weakness in the index was attributed to weaker financial stocks. They fell after the Reserve Bank of Australia suggested that there is room for stronger growth, which could be assisted by lower interest rates. The four major Australian banks took the fresh indications the central bank has a continued bias to ease by falling 0.1 percent and 0.6 percent.

Helping to boost the index was renewed buying in the energy sector. Some of the gains were attributed to BHP Billiton, which closed half a percent higher before releasing its full-year results after the market close. Also bolstering the S&P/ASX 200 Index was a 0.9 percent gain by Rio Tinto and a 1.8 percent rise by Fortescue Metals Group.

Australian Stock Market
Daily S&P/ASX 200 Index

FORECAST

Today’s economic report is the quarterly Wage Price Index. It is expected to rise 0.5%, up from 0.4%. Traders are bracing for the possibility of a weaker-than-expected number that could confirm record-low wages growth.

In March 2016, the Australian Bureau of Statistics released data that showed wages growth hit a new 18-year low. The index rose just 0.4 percent in the March quarter for a year-on-year rate of 2.1 percent. This was lower than the 0.5 percent and 2.2 percent recorded in the December quarter last year, making it the weakest rate of growth since the first full year of the current wage price index in 1998.

This report could cause volatility in the market because economists are predicting a slight uptick to 0.5% from 0.4%, while unions do not expect the wage growth figures to show any improvement from March. Basically, any result weaker than the record low in March would be a further indication that the Australian economy is slowing and becoming increasingly stagnant.

Traders should also watch the price action in the U.S. Dollar since it helped drive up gold and other metals on Tuesday as well as commodity and mining stocks. Crude oil should also be watched closely since energy stocks posted a strong move yesterday. Traders in that market are reacting to the possibility of a cut in production to help lower the current supply glut. Some investors are skeptical about the impact of any plan to lower supply at a time when demand is falling.

 

S&P/ASX 200 Fundamental Analysis – August 16, 2016 – Forecast

The S&P/ASX 200 Index finished at 5540, up 9 points or 0.2 percent higher on Monday as investors prepared for the release of the minutes from the Reserve Bank of Australia at 0130 GMT. The Australian sharemarket rebounded into the close, after a National Australia Bank (NAB) quarterly updated encourage investors to buy bank shares. Strong earnings reports from JB Hi-Fi and Orora sent these stocks into new all-time highs.

MONDAY’S RECAP

The nine-point gain by the index was a struggle, however, after a sharp sell-off in mining stocks early in the session drove prices lower. Pressuring the market was a drop in BHP Blliton, which fell 2.5 percent and weighed heavily on the benchmark index.

Monday’s volatile price action was essentially fueled by the bearish movement in natural resource-related shares early in the session and by financial sector stocks later in the day.

Commodity-linked stocks sold-off on profit-taking after a recent strong rally. Follow-through selling from Friday’s losses was behind the weakness as investors continued to react to disappointing data from China released late last week.

The index was primarily driven lower by two companies: Rio Tinto and BHP Billiton, but supported by a rally in a slew of financial stocks.

Daily S&P 500 ASX 200

TUESDAY’S FORECAST

Tuesday’s price action is likely to be driven by more of the same: hard assets or commodity-related shares and paper assets or bank stocks.

Right from the start on Tuesday, volatility is likely to be present with the release of the minutes from the Reserve Bank of Australia’s monetary policy board meeting on August 2. At this meeting, the central bank cut its benchmark rate 25-basis points from 1.75% to 1.50%.

The Australian Dollar’s reaction to the news indicates that investors felt the RBA’s statement was dovish. Investors see one more rate cut in this interest rate cycle, but that is not expected until early 2017. Traders will be looking at the minutes for clues that suggest a rate cut may come even earlier. This would be bearish for the Aussie and could hurt bank stocks.

Currently, the low interest rate environment is putting pressure on net interest margins. NAB’s quarterly profit update released on Monday showed this with cash earnings lower by 3 percent for the quarter, driven by higher funding costs and bad debt charges. Nonetheless, its numbers were impressive enough to help boost the entire bank sector.

Trading conditions could become more volatile later in the session on Tuesday with the release of fresh data from BHP Billiton. The stock fell 2.5 percent on Monday, but could fall even further since today’s report is expected to be marred by big writedowns. Some traders are saying the miner is expected to unveil one of the biggest losses in its history.

The best scenario for bullish traders will be RBA minutes that help bank stocks and a less-than-expected loss by BHP Billiton. Minutes that suggest a sooner-than-expected rate cut and a much larger loss by BHP will be good for the bears.