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Trading week preview

The ASX 200 has range traded over the course of the past week, consolidating after its precipitous tumble from decade long highs.

Market data
Source: Bloomberg

ASX 200

The Australian equity market is currently plagued by the malaise inhibiting trade in ex-US shares. Following a round of aggressive profit taking a fortnight ago, the ASX 200 has discovered a comfortable range between 6130 and 6195, with the 100-hour EMA at 6170 proving an especially sticky point. Volumes in recent weeks have been relatively – though not remarkably – light, suggesting that as the market stands, investors are less bearish on the ASX, and more reluctant to buy back in, particularly amid the escalating US-China trade war. This being so, though fundamentals are generally conducive to another move higher, dulled risk appetite will weigh on equity indices – a situation that will remain so while uncertainty regarding the trade war reigns supreme.

The Winners and Losers

A rally in global oil prices has underpinned strength in energy stocks, supporting the broader ASX consequently. The price of Brent Crude topped $US80.00 per barrel briefly last week, as supply side concerns relating sanctions on Iran coupled with the short-term effects of US Hurricane Florence on oil producing regions within the US drove traders to buy oil. Santos rallied over 3 per cent on the news, while Woodside climbed one and a half per cent, taking the energy sector’s gains to around 1.3 per cent over the last 5 days.

The turmoil relating to the US-China trade war and its effects on commodity prices began to manifest in materials stocks last week, but the real laggard was the health care sector. Granted this is in part because following remarkable YTD gains for the sector, it has farther to fall when sentiment shifts. However, with the dividend yields quite lower, and valuations quite stretched on the large-cap health care stocks – such as CSL and Cochlear – health care companies have found themselves more prone to falls when macro factors sap risk appetite.

The little Aussie battler

The Australian Dollar received a boost from an increase in risk appetite last week, on the back of what were at the time easing trade war tensions and better than expected employment figures. While the global growth outlooked has soured with the new escalation in US-China trade war, the AUD/USD has benefited from an out of vogue greenback, forming a range between 0.7150 and 0.7200. The story isn’t quite the same across the other major Aussie Dollar pairs, with safe-haven plays into the EUR and GBP (along, of course, with the perennial risk-off favourite, JPY) by virtue of greater optimism regarding Brexit and the region’s growth prospects forcing the AUD lower against those currencies.

The data week ahead

The most important information this week was always going to be US President Trump’s announcement of his administration’s latest tariffs on Chinese imports. Lo and behold, the details that arrived this morning about the next round of tariffs were judged to be worse than expected: the tariffs will arrive on the 24th of September and will be levied initially at 10%, before increasing to 25 per cent at the end of the year. The remainder of the week may well be characterized now by the Chinese response to the latest round of tariffs, who’ve stated they would walk from negotiations if they were imposed.

Aside from the unfolding matter of the global trade war, the economic calendar isn’t threatening to throw up any stories that will considerably impact markets this week. The RBA released their minutes on Tuesday morning, but provided little new insight outside their firmly held line that growth, inflation and employment would gradually improve over time. In international stories, the Bank of Japan decide on monetary policy on Wednesday and ECB President Draghi will deliver a speech on Wednesday night; while some attention will be directed to Retail Sales and CPI figures out of the UK and Canada, along with GDP data out of New Zealand.

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