The great GDP

Many traders will be asking what it will take to lift the ASX 200 out of this malaise of constant retracements. Forward earnings per share for 2017 is projected to grow by 23% from this year’s 5% average.

Capitol Hill
Source: Bloomberg

The gross domestic product (GDP) came in at 2.4% and was met with little interest by the buyers in the market. In a nutshell, Australia is one of the best performing economies in the world. It has very low interest rates, solid employment levels, and political stability. Is it the level of household debt that has the market worried? Currently the Australian household debt is 123% of GDP. Household debt to GDP in Australia averaged 69.51% of GDP from 1977 until 2016. It reached an all-time high of 125.20% of GDP in the first quarter of 2016. The answer may still be in the property market that remains in its own bull market. History shows that major equity market retracements are preceded by a property market crash. The key ingredient missing for this potential outcome is high interest rates.

Donald Trump has promised 'phenomenal' tax cuts in the US very soon. Would this be the great 'unknown' the markets are concerned about? Slashing tax rates in a large manufacturing base, such as the US, will make those who trade with the US suddenly very uncompetitive and now having to compete without a free trade agreement.

The overnight markets have given President Trump’s address to congress a stamp of approval, by moving the DOW and S&P futures contracts to a new high within hours of the address to congress - a very bullish signal.

The US transportation index was the best performer; it rallied 2.2% higher in the session. US 10-year-yields rallied an overall 2.7% that finished at 2.45%, while the USD index also moved higher.

The VIX volatility indicator fell 6.5% to 12.07.

A strong open is expected in the ASX 200 with the SPI futures calling the market up by 57 points. This is still a data dependant week with the European Consumer Price Index (CPI) due tonight at 9pm (ADST) and on Saturday the USD ISM Non-Manufacturing Composite is also due to come out.

Adding to the upside for the Australian markets, oil remains steady at $53.82lb.
The overnight ADR’s show BHP at $25.33, the last trade at $24.88, and the FMG ADR showing $6.85 against a last trade of $6.60. Iron ore futures have not given a strong lead and remain at a consolidation level above $90 at 91.26.

The rebar futures was the real gainer overnight; it was up 1%. Commodities had a good run with
copper, trading at $2.73 above the $2.70 key support level. Nickel at $10,926 per tonne and moving higher towards the resistance levels at $11,000. Speculative traders remain net long commodities, with some reports suggesting the highest net long level in 12 years.

In the financials, CBA is also looking to open with positive ADR quotes at $83.72, against a last close of $82.81.

The 5833 level remains the technical resistance level for the ASX 200. With the US markets closing on the highs for the session, our market has a real shot at 6000 points in the coming months.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.

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