A short cut to higher ground

After a local close at post GFC highs, global markets added to the momentum with new all-time highs for the German DAX and US S&P 500, and a fifteen year high for the tech heavy Nasdaq. Overnight data was positive in Europe and mixed in the US, and industrial commodities are back to where they sat yesterday. All this points to a positive start for Australian shares, although trading may be cautious ahead of some key market events today.

Building approvals numbers this morning are on traders’ radar. Expectations are for a further fall in January, after December’s 3.3% drop. This would confirm the RBA‘s view of softening growth prospects in the non-mining economy, and the need for a February rate cut. The reaction to a stronger than expected read may surprise. Buying yesterday focussed on yielding stocks and sectors, in anticipation of another rate cut from the RBA this afternoon. A strong building approvals number may see interest rate markets moving away from the current pricing of a 60% chance of a cut today, and traders and investors bailing out of recent share purchases.

If the RBA does move today, or shift from a neutral stance to easing, the Australia 200 index may broach the 6,000 level for the first time since early 2008. The AUD is an important factor. Levels around 78 US cents and 93 Japanese yen make yielding Australian shares attractive to international investors. Lower interest rates are likely to pressure the AUD, lending further support to local stocks.