How far will the 'sell banks, buy resources' theme play out?

Stronger iron ore and oil prices combined with a positive lead from US markets will see the stock market open stronger this morning.

There have recently been signs of investors rotating out of bank stocks and into mining and energy stocks, especially BHP. Investors appear to be chasing relative value buoyed by gains in iron ore and a broadly solid round of production reports.  How far yield starved bargain hunters are prepared to hold off buying bank shares now that share prices have retreated from recent peaks looms as one of the key features of the Australian market landscape in the near future.

The recent lift in iron ore prices has also helped to support the Aussie Dollar allowing it to withstand some disappointment over yesterday’s softer than expected Flash PMI read from China.

Weaker than expected new home sales in the US during March also led to some selling of $US last night. Although weaker new home sales appear to be partly driven by supply issues, this figure dashed the brief burst of hope created by stronger than expected existing home sales data in March. So far most of the partial statistics on US economic data during March have pointed to a softer than expected trajectory out of the cold winter downturn.