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Trading week preview

The ASX 200 demonstrated a remarkable resilience in the early stages of last week, only to abandon its fight late Thursday as US-Sino trade war fears sucked confidence from the market.

Market data
Source: Bloomberg

Following several attempts at a break above 6300, the Australian share-market has spent the last 3 weeks in a range trading approximately between 6235 and 6290. The price action points to definite signs of consolidation for the market, which now confronts the local earning’s season.

The Australian share-market appears to be creeping towards a cross-road, after several weeks of effectively sideways trading. Two pertinent technical indicators for the ASX – an upward support line, and the 20-day EMA – are beginning to come under some duress, threatening to put an end to the uptrend that began in early April. Thus far, the index has kept itself above each of these lines, bouncing off them when engaged, and utilizing the adequately-sized distance between the supportive trend-line, and the resistance line on the upside. However, it us only a matter of time before these levels narrow and force the ASX to choose a direction. 

The winners and losers 

It was the energy sector that outperformed the rest of the ASX 200 last week, as a recovery in global oil prices pushed energy stocks 1.64% higher. Real Estate stocks were close behind, clocking a respectable 1.57%, aided by a vastly better than expected building approvals figure last week. The same catalyst was in part responsible for the 15.03% rally in the share price of ALS, along with an upgrade of its price target by UBS. While the biggest winner when it comes to individual stocks was Credit Corp, which climbed 16.01% after it posted better than expected profit figures.

The information technology sector was the biggest laggard last week, weighed down by choppy sentiment towards the tech space on Wall Street. The most disappointing activity was in the materials sector and banking stocks, which were primarily responsible ASX’s for the Australian markets sloppy end to the week. The pain could realistically continue for both the materials space and bank, as the US-Chinese trade war continues to heat-up and fears about Australian financial stability loom. 

The little Aussie battler 

The AUD/USD hasn’t shifted from a fundamental standpoint in several weeks: it remains locked with a sideways channel, well confined within the broader downward trend that has prevailed since early-February this year. Though the risk remains to the downside, it must be remarked that given increased global risks and a widening yield disadvantage, the AUD/USD  has performed surprisingly well.

The activity last week came on Friday from the AUD/EUR and AUD/GBP, with the local unit taking advantage of better than forecast Australian Retail Sales figures, combined with a general antipathy towards the Pound and Euro, to rally ~0.6%. The AUD/EUR now finds itself at a 6 week, challenging the 0.6400 handle, and eyeing next resistance at 0.6435, as mounting talk of a “no-deal” Brexit outcome shakes EUR and GBP trader’s nerves. 

The data week ahead 

Although the global economic calendar is relatively light when compared to last week, it will be a significant one for RBA watchers, with several events lining the calendar relating to Australian monetary policy.

The excitement will begin Tuesday at the RBA’s monetary policy meeting. At which the central bank is unanimously tipped to keep interest rates on hold at 1.5%, before attention shifts to a speech on Wednesday scheduled to be delivered by Governor Philip Lowe, and then to the quarterly release of the RBA’s quarterly Monetary Policy Statement on Friday.

This month marks the two-year anniversary of the last time the RBA moved the cash rate: the commentary flowing from the week’s events will illuminate future policy direction further, but as it stands, rates markets are not pricing in a full interest rate hike until early 2020.

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