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Trading week preview

The ASX200 made another determined climb towards 6300 at the end of last week, breaking that key psychological barrier during trade on both Thursday and Friday.

Source: Bloomberg

Despite the strong activity, the local market failed to close above the 6300-mark, as traders lost their nerve when confronted with the prospect of new ten-year highs.  Any advance towards that mark has again become remote, as financial markets pull risk-off the table amid the developing financial crisis in Turkey.

The Australian share market took a surprise run at a record high on Thursday, galvanized by better than expected reports from some of the financial sector’s big players. The week’s highest close was at 6297, just shy of a decade-long high, and looked poised to consolidate near that level as Friday came to an end. Unfortunately for equity traders, news of the financial crisis in Turkey and its possible impact on European banks floored the local market, as macro drivers undermined the market’s solid fundamentals. The ASX200 has subsequently tumbled back to 6247, with a trend line good since March this year looking exposed at 6235.


The Winners and Losers

The financial sector underpinned the ASX200’s climb higher last week, following a relief-rally of sorts post-CBA results, and better than expected updates out of Magellan Financial and Suncorp. It was Magellan the performed one the best on a stock-by-stock basis for the week, climbing 16 per cent on news that the company would reform its dividend policy to direct a greater share of profits to shareholders.

The utilities sector was the worst performing for the week, down more than 3 per cent throughout the week’s trade. Arguably, it was the commentary coming out of AGL’s earning’s update that catalysed the move, after that company’s management announced it was expecting lower revenues due to a fall in electricity prices in the year ahead.

The little Aussie battler

The AUD/USD has been dumped in the past several days as the unfolding Turkey crisis has traders piling into safe-haven assets. Compounding the issue is further falls in interest rate expectations, following the release of Friday’s RBA quarterly Monetary Policy Statement, which saw the RBA imply it does not expect to reach its employment and inflation targets until early 2020.

The AUD/USD is trading at levels not witnessed since January 2017, pushing as low as 0.7250 before bouncing back towards 0.7275. The AUD/JPY’s falls have been more pronounced, owing to the effect of an unwinding carry trade, coming precariously close to breaking below the 80.00 Yen mark.

The AUD/EUR is the only Aussie-related pair holding ground, courtesy of a sell-off in the EUR, as fears mount of European bank’s exposure to bad Turkish debt.  The pair has barely budged since the news of Turkey’s crisis broke, supported well around 0.6390.

The data week ahead

The attention from a fundamental data point of view will be directed towards the domestic labour market data this week, and how that may inform RBA monetary policy: the ABS will release quarterly Wage Price Index data on Wednesday, and the monthly employment figures on Thursday. Market participants will be perusing each release for indications that spare capacity in the Australian economy is becoming utilized, and that some of those benefits are flowing through to workers.

With inflation sluggish and consumption weak, a lift in labour market activity and a subsequent boost in wages has been long prescribed as the cure for some of the domestic economy’s stubborn malaise. Furthermore, it is the absence of each that is leading interest rates traders to discount any chance of an RBA rate hike until early 2020. Expect employment and wage growth figures to shape trader’s views on Australian monetary policy, as well as provide the context for RBA Governor Philip Lowe’s testimony before the House of Representatives’ Standing Committee on Economics on Friday.

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