IG Markets: Notes on Australian markets today

The day's key takeaways

Kyle Rodda, Market Analyst, Australia

The day's key takeaways:

- A touch of relief in Asian markets, but trading is ending the week on a dull note

- ASX rallies courtesy of a jump in bank stocks; investors keeping a defensive mindset

- A timely reminder: what’s really driving stock indices higher through all this risk

The run down:

The week is ending on a bit of a dull note in Asian trade. Somewhat like last Friday, with so much uncertainty surrounding the COVID-19 virus, and its possible impacts, traders are seeming uninclined to taking-on too much risk going into the weekend. We have seen general strength in stocks throughout the Asian region, it must be said, and other growth sensitive markets are enjoying upside. But the moves, at least thus far this Friday, have been marginal. Th market is still holding onto the belief that rate of in COVID-19 cases is slowing, and that the outbreak is coming, slowly, under control. That perception was aided by last night’s comments from the World Health Organisation that yesterday’s spike in reported cases probably included days or weeks of cases previously underdiagnosed, and probably does not reflect a growing rate of infections. Hence, given the uncertainty, markets remain watching and waiting, for more substantial information about how the COVID-19 outbreak is actually evolving.

We have seen general strength in stocks throughout the Asian region, it must be said, and other growth sensitive markets are enjoying a touch of upside, as a slightly greater sense of comfort returns to the region’s markets, following yesterday shock COVID-19 news. The ASX200 is up by around 0.36 per cent, and remains within striking distance of new all-time highs. The Australian Dollar is a skerrick higher, holding above the 67-cent level, as it continues to trade as sentiment-proxy for Chinese economic growth. The sectoral breakdown for the ASX suggests investors still have a generally risk-averse mindset, with defensive sectors up and cyclicals lagging, one again. Although the gains really have been underpinned by some very strong trading activity in the big-banks. NAB shares are up two-and-a-half per cent, while CBA shares are up over 2 per cent, as investors bid up bank share prices, after the NAB’s positive trading update, and the CBA’s better than expected half-year results.

Futures markets are suggesting a reasonably positive start for European and US stock markets. The moves will put US equities back on their path to new all-time highs, having pulled back from their last night. The catalyst for last night’s sell-off bares mentioning. Rather than the swing in sentiment regarding the COVID-19 outbreak, the real catalyst that push US equities into the red in the overnight was news that the US Federal Reserve is planning to cut the size of its overnight repurchase operations. It’s a stark reminder of what, at its core, is driving US, and at that, global stocks higher: the ample liquidity being pumped into the market by policymakers, and investors’ search for attractive yield in this low growth, low rate world. It’s this reason why that despite highly warranted concerns about the strength of the global economy, slow earnings growth, and eye wateringly rich valuations, stock indices can continue to charge higher with only the most momentary dips.

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