Trading week preview

The ASX200 experienced a terrible week last week, tumbling 1.45 per cent after traders sold out of Australian shares because of the nation’s latest leadership coup.

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Source: Bloomberg

The ASX200

Having touched a decade-and-a-half long high the week prior, news that Australia’s governing Liberal party thought it time for a new Australian Prime Minister shook investors of their confidence. The ASX200 collapsed under the weight of the new uncertainty, with tenuous support at 6330 easily gave way, and support/resistance at the psychologically significant 6300 found itself brushed aside. The week ended back at a familiar comfort zone around 6240, stripping the index of August’s bullish run higher. Now the ASX200 is clear of the political power struggle, it sits at an important intersection with strong activity in global equity markets the best opportunity of restarting the market’s engine.

The Winners and Losers

Despite the overall miasma emanating from Canberra and its stupefying effects on the Australian share market, there were some sectors that displayed signs of essential health. The telecommunications space led the gainers for the week, with TPG Telecom also leading the charge on a member-by-member basis, adding 29.23 per cent, following news that company is conserving merging with Vodafone. Telstra benefitted as an extension to this, climbing to $3.26 per share, building on the gains made following the company’s generally positive earnings report from the week prior.

The biggest laggard last week, owing apparently to the chaos in Canberra, was the financial sector, led naturally by a sell-off in the banks. While falling long-term global yields and a recommencement of the Royal Commission into the industry wouldn’t have helped, the lion’s share of the bank’s losses appears to have occurred after the Liberal leadership battler. Arguably, this reflects the market’s perceptions that last week’s political debacle amounts to a hands-down win for the Labor opposition, which have made a platform out of tighter bank regulation, removing tax concessions for property investors, and removing investor’s franking credits.  

The little Aussie battler

The AUD also suffered from Canberra’s chaos, challenging support at 0.7230 against the USD, but regained its footing courtesy of a weaker greenback following US Federal Reserve Chairperson Jerome Powell’s speech in Jackson Hole. Given the light week of data ahead, the local currency is going to be sensitive to global risks, such as those present in emerging markets and the toxic US-China trade war, meaning downside to 0.7200 and 0.7160 looms as the next levels down if these stories inflame.

In the absence of developments in those stories, however, a drift higher from a slightly softer USD is a possibility. Currently, the AUD/USD rests on its 20-day EMA and has found some support at its 50-day EMA, presently around 0.7375. If an unforeseen burst pushes the local unit above this mark, some free air opens all the way to 0.7440, at what amounts to the top of the AUD/USD’s medium-term trend channel.     

The little Aussie battler

The AUD also suffered from Canberra’s chaos, challenging support at 0.7230 against the USD, but regained its footing courtesy of a weaker greenback following US Federal Reserve Chairperson Jerome Powell’s speech in Jackson Hole. Given the light week of data ahead, the local currency is going to be sensitive to global risks, such as those present in emerging markets and the toxic US-China trade war, meaning downside to 0.7200 and 0.7160 looms as the next levels down if these stories inflame.

In the absence of developments in those stories, however, a drift higher from a slightly softer USD is a possibility. Currently, the AUD/USD rests on its 20-day EMA and has found some support at its 50-day EMA, presently around 0.7375. If an unforeseen burst pushes the local unit above this mark, some free air opens all the way to 0.7440, at what amounts to the top of the AUD/USD’s medium-term trend channel.     

The Week Ahead

The week ahead for local markets will have relatively fewer data events to trade from, making local markets more vulnerable to external risks. Reporting season for the ASX200 slows somewhat after last week’s inundation of company reports, with the likes of Regis Healthcare, Blackmores and Regis Healthcare the one’s to watch; while fundamental data will be very light, with Thursday’s Capital Expenditure data the only truly significant release. The dearth of news may see traders shift focus to matters affecting emerging markets, or the unfolding trade war, which took a backwards step last week after US-China trade negotiations fizzled. 

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