The Monday Report

Daily Market Reports | Mar 20 2017

By Greg Peel

Not Quite

Friday’s trade on the local market smacked of a determination to push the ASX200 above the 5800 resistance level. The index reached the mark mid-morning before retreating, but broke through once more at lunch time. The sellers moved in, but on each sortie 5800 now became support.

When the index hit 5815 mid-afternoon, it looked for all the world as if the market had broken through, ready to set its sights on the 6000 level chartists ensure us the index will reach as soon as 5800 is overcome. But it was not to be. The sellers won out at the death and we closed at 5799.

Will today be the day? Unlikely. Wall Street closed slightly weaker and the futures closed down -13 points on Saturday morning.

Financials provided the upside for the market on Friday in rising half a percent, aided by bank mortgage repricing. Industrials also chimed in, while utilities and consumer staples fell half a percent to provide the balance. Energy eased off a little but for once, materials had a flat session.

If we are to finally break on through to the other side, materials would need to be a driving force. Can commodity prices rise further? No one much seems to think so.

Squirm

It was a quadruple witching equity derivatives expiry on Wall Street on Friday night but one wouldn’t have noticed. The volatility that often accompanies such quarterly occasions was lacking and the market was generally quiet. It was a Friday after a week in which the Fed took the spotlight and after some frantic trading during the week, sights were clearly set on a relaxing weekend.

Relaxed is not how one might describe German chancellor Angela Merkel on Friday night, either in the ubiquitous armchair next to Donald Trump or later at the press conference podium. Awkward is about the only way one might describe the encounter, in the wake of Trump’s campaign ravings in which Germany was one of many countries to come under fire.

In the same position, Shinzo Abe had been clearly relieved to be released from Trump’s crushing handshake but in Merkel’s case, the usually mandatory lengthy handshake didn’t even happen. Merkel squirmed, Trump looked uncomfortable. He looked uncomfortable again at the podium, while Merkel looked as if she couldn’t believe what an idiot she was standing next to.

But US-German relations are all fine, apparently, although Trump still insists Germany owes the US a fortune in backdated military protection costs. Good luck with that one. Trump seems to believe the US military is some sort of service for hire. Ever the businessman, never the diplomat.

Wall Street saw nothing in the encounter that was market moving, and nor did traders in Germany. The Dow closed down -15 points or -0.1%, the S&P lost -0.2% to 2381 and the Nasdaq was flat. The DAX rose 0.1%.

I suggested last week that with the Fed out of the way for now and fiscal policy tied up in healthcare, probably for some time, Wall Street would have to now look simply at fundamentals and data for direction. It was not a good start.

Industrial production was flat in February when 0.3% growth had been forecast. The miss was nevertheless attributed to unseasonably warm weather reducing demand for utilities. Consumer sentiment rose over the past fortnight, but not by as much as forecast. The only positive was the Conference Board’s monthly index of leading indicators, which rose 0.6% for the third consecutive month to its highest level in over a decade.

It don’t personally rate a leading indicator index that includes the stock market in its calculation. What is a stock market if not a leading indicator? If the stock market responds positively to a leading index that has risen because the stock market has risen, it’s no more than double-counting.


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