IG Markets: Notes on Australian markets today

Kyle Rodda, Market Analyst, Australia

The day's key takeaways:

- ASX200 sustains its mini-recovery, with a broad-based gain in Aussie stocks

- A killer buy, or a looming short? Oil prices are hanging on the precipice.

- US Dollar goes all Mark Twain: it’s alleged demise has proven exaggerated

The run down:

Stocks have climbed across the region, with the ASX200 climbing 0.6 per cent as of 3PM afternoon, in a day’s trade that’s seen very robust activity. Volume has been well above average, and every sector of the market has traded higher. The cause for the rally is largely sentiment driven, and brought about by extrinsic factors. US indices hitting record highs overnight, as US tech stocks sustain their meteoric rise, along with reports of fresh liquidity injections from the PBOC, has kept a solid bid under stock markets. The day’s data was also, on balance, positive. South Korean trade data was released, and exceeded expectations, fanning hopes that Chinese economic activity is holding-up better than expected. For all the fundamental reasons to be a bit sceptical about the ASX – and there are a few – things are looking constructive still for Australian stocks. Long term price momentum is skewed to the upside, while in the short-term, signs of an upswing are visible.

Oil prices really look they are hanging on the precipice now. WTI sits on a key technical support level, with the bearishness and fears about global growth engendered by the coronavirus threatening to push the price right through it. For some, this strikes as a tremendous buying opportunity, for others, they are waiting for the levee to break. Technically speaking, in the short-term, oil is certainly oversold, but the momentum and trend is clearly to the downside. Fundamentally, open questions remain. OPEC+ haven’t stated with any conviction that it’ll step in to cut production and supply to support the market. Concerningly, too, reportedly the Russians are, in part, behind this reticence, having expressed their comfort with a WTI price closer to $40 a barrel, given their energy companies’ break-evens. A lot hinges, it would seem, on how big an impact the coronavirus will have on global growth. If it proves worse than expected, then oil could be set for quite a tumble.

Once again, stories about the US Dollar’s demise have proven premature. It’s on the up again right now, as coronavirus subverts the so-called global “reflation-trade”. In the bigger picture, perhaps the Dollar’s bull run is closer to its end than its beginning, especially if the global economy returns to its path towards recovery once the risk of coronavirus passes. But in the immediate future, there’s reason to think the US Dollar still has room to climb from here. The Dollar is enjoying the flows out of commodity and EM currencies as concerns about Chinese economic growth increase. While its healthy yield advantage is keeping it bid across the G4s. The Dollar may well enjoy greater tailwinds against some of the heaviest constituents in the Dollar Index in the days ahead, too. The Euro is falling out of favour because of fresh German political-risks. And the Pound looks vulnerable to downside if tonight’s UK economic figures raise the odds of BOE rate cuts.