Trader thoughts - the long and short of it

The activity will begin to mount today in financial markets, as yesterday’s lazy Monday, which was characterized by prepositioning and profit taking, gives way to the first set of major events this week.

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Source: Bloomberg

There were no high impact events across asset classes during the overnight session, with global markets still trading-off last week’s developments, coupled with some speculation about the possible outcomes to the high-risk events today and in the week ahead. Global share markets pulled back; consequently, currency markets were shifted by a softer greenback, while bond yields ticked higher in line with speculation regarding the numerous central bank meetings underpinning the week.

US Shares: Wall Street followed its European counterparts lower overnight, mostly thanks to a big shot of bearishness towards the tech sector. There appears to be somewhat of unfolding existential crisis in technology stocks, after a spate of weaker than expected earnings from “FAANGS” superstars Facebook and Netflix. The Nasdaq looks at the time of writing to register a third successive day of falls, and the S&P 500 remains mired in the underwhelming muck of weak tech-company reports – many of which are coming from mid-cap companies. Apple reports in the coming days, with that release representing for many the flashpoint for whether the weak reports apply to exclusively to the internet, subscription-based companies; or whether the malaise extends to the tech-sector as a whole.

ASX yesterday: SPI futures are indicating a more-or-less flat start for Aussie shares this morning, following a day in which the ASX 200 retreated from last week’s decade- long highs. There weren’t any major stories behind the slide. , Hhowever the weak lead from Wall Street didn’t help; rather it seems traders were happy to book profits amid the lower volumes, and while the low volatility allowed for it. Across the sector map, every area of the ASX closed flat or lower for the day, with the notable exception of the telecommunications sector, which climbed 1.7 per cent due to solid gains by Telstra.

ASX levels: Although the ASX 200 closed a little below what might have been otherwise considered a bullish level, the 0.35 per cent fall to 6278 does give indications that underlying confidence in the market remains high. As has been witnessed on several occasions of late, headwinds for the ASX become very strong above the 6300 level – a mark that could be tested if upcoming corporate reports prove better than forecast. In all, for the time being, the trend for the market is higher, with support at the index’s 20-day exponential moving average (currently at 6260) a great indicator of support and bullish sentiment. 

Telstra: Telstra was the star performer yesterday from a price perspective, a situation that was in big part supported by the relative lack of positive activity in the broader market. The company’s share price rallied in the order of 1.8 per cent yesterday, as an announced management shake-up was met favourably by traders. The news was undoubtedly a positive one for traders, though the price-trend for Telstra-shares is irrefutably lower. Given its relatively low price, deep liquidity, and a likely steady news flow relating to the company’s future, Telstra shares are a speculator’s dream, so expect ongoing volatility as “funny-money” continues to move the price around.

Japan: The headlines for international financial markets will likely revolve around activity in Japanese markets today, as traders prepare for the conclusion of the Bank of Japan’s monetary policy meeting today. The point of interest is in whether the BOJ looks to begin positioning markets for a change in the central bank’s bond- buying program, which is coming under increased scrutiny by the country’s profit-squeezed banking sector. Bond markets have proven highly sensitive to this story, with any news affirming a change in the BOJ’s bond- buying program likely to put upward pressure on global yields. In addition to this, considering the numerous risk events this week, watch for strength in the Yen if Japanese yields rally.

Economic data: Several economic data releases relevant to the Australian economy are printed today and will provide insight into the economy’s fundamental strength. Building Approvals and Private Sector Credit figures are released today, with banking stocks the ones to watch on the back of that, as concerns mount about property activity and credit growth in the economy. While in a much broader macroeconomic sense, significant attention will be directed towards Chinese PMI figures this morning, as market participants gauge the overall strength of the Chinese.

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