IG Markets: Notes on Australian markets today

Kyle Rodda, Market Analyst, Australia

The day's key takeaways:

- Asian stocks drift lower, as traders await Davos, central bank meetings, and US earnings

- Markets to kick-back into gear tonight: interest remains in Wall Street’s record-run

The run down:

In the absence of a Wall Street lead, Asian markets have waffled along a little so far today. The financial calendar is highlighted by the meeting of the Bank of Japan meeting, and at time of writing, although it’s not handed down its policy decision, little change of stance from the central bank is expected. That ought to keep the Nikkei trading steady, as that index remains elevated at a major long-term resistance zone. As for more domestic concerns, the ASX is looking poised to give up a touch of its record run, and shed ground for the first time in five days, on a day that’s seen very light market activity. The Australian Dollar is treading water, after dipping last night, courtesy of a slightly stronger USD, as traders keep one eye on the major local jobs data release on Thursday, which may well make-or-break whether the RBA cuts interest rates at its meeting next month, or not.

The week kicks-off in earnest now, with US markets coming back online tonight. The question is whether US stocks can continue their charge and clock-up further record highs. As it stands right now, futures markets are pointing to neutral open to Wall Street trade. For the benchmark S&P500, all trends are skewed to the upside, and upside momentum remains strong. This market is behaving like a steam train, and getting in its way is risky. But there are sure signs that equity markets are getting toppy, in the short-term. Sentiment is very exuberant, volatility conspicuously low, and the analogue to January 2018’s run-up, then pullback, remains intact. Valuations are eye watering, even if they are being sustained by central bank liquidity and relative yield. No doubt, it’d be foolish to try and pick-a-top for the S&P500. As the axiom goes: the trend is your friend. Nevertheless, it bares consideration that price in this market is still tearing ahead of fundamentals.