Trader thoughts - The long and short

The bulls have taken over again as the US and European markets caught a bid with triple-digit gains in the Dow and solid gains in the commodities space.

Market Data
Source: Bloomberg

The bullish picture for equities remains as the blame game around the failed repeal of the Obama healthcare act and politics in general take a back seat once again to real economic growth.  

The March consumer confidence number coming in 7% higher than the forecast at 125.6. This has helped the USD out of what was looking like a dire corrective move lower, as it fell below the key psychological level of 100. US wage growth, the other measure of impending inflation and activity is trending towards an annual growth rate of 3%, with business expectations trending higher.

Federal Reserve’s Vice Chairman Stanley Fischer, when interviewed last night, stated that two rate hikes this year seems about right. This indicates that the Federal Open Market Committee (FOMC) does have a clear picture of the American economy, which is growing at a pace suitable for an environment with continually rising interest rates. The market has taken this as dovish commentary, but not acted on his views.

US five-year treasuries have seen yield move higher into 1.95%, with traders clearly looking for better gains back in the equities markets. Gold has eased back on the news down $4.55 at $1250; this could bring some profit taking into the Australian gold producers space today.

As an overview, the market never really gave a committed sell signal other than some risk off profit, taking after the 15% Trump trade rally. The VIX, a measure of forward volatility has returned to lower levels in line with the current animal spirits rally. The benchmark Dow really looks poised to move back the highs of the 1 March in this macroeconomics driven market.

With solid overnight gains, and our ASX 200 market staging a strong rally on the back of financials yesterday, the all-important technical resistance level of 5833 was challenged on the close.

Overnight, SPI futures are pointing to a 16-point gain on open. A break of this important level will provide a strong technical signal as evidence to traders that the market is targeting 6000 points in this current rally.

It seems the four pillar banks reacting to pressure from APRA have pressed ahead with investment loan rate hikes, margin expansion and the continuing bid in the housing market has the financials space poised for moves higher.

In the commodities space, iron ore futures made a 3.2% turn around after eight days of declines. There was also a solid rebound in west Texas intermediate oil finding price support and a move back over the $48.50.

The overnight BHP American depository receipt (ADR) has the open for the stock flat, suggesting the early turn in commodities was priced in yesterday. Fortescue’s ADR has the stock priced at $6.23, a gain of over 1% from last close. A positive day across the board today, with financials leading the way and commodities holding the gains from yesterday.

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