Sector Rotation Leaves Market Flat

The Australian market has taken a turn for the worse after a strong lead from overseas markets and a surprise Chinese rate cut on the weekend. After being up about over 60 points and filling the “gap down” from last Thursday, the financials, healthcare and staples sectors have been sold off in what could be a rotation back into the materials and energy sectors.

The underperformance in NAB’s UK business and future of margins in the banking sector amid the current low interest rate environment has led investors to flock from the banking sector over the last week. The rally in the iron ore price, amongst other commodities, has seen a flow of funds back to mining heavyweights BHP and RIO as well propelling Fortescue Metals up around 10% in the last week.

Although there is a lot of uncertainty surrounding the federal budget tomorrow, traders will be hoping Australia will follow the likes of Europe and Asia and lean towards a budget in favour of growth. Last week’s interest rate cut was evidently not enough to drive the share market higher. The Australian market has underperformed this year compared to other major indices.

China’s retail sales and industrial production data for April is out on Wednesday. It will be interesting to see if the recent stimulus measures that China has adopted will flow into the economy, and in turn, increase Chinese demand for Australian Resources.

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