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.
For further comment from Michael McCarthy at CMC Markets please call 02 8221 2135.
Frequently Asked Questions about this Article…
Global stock markets are experiencing positive momentum, with the German DAX and US S&P 500 reaching new all-time highs, and the Nasdaq hitting a fifteen-year high. This trend is supported by positive data from Europe and mixed data from the US.
Australian shares are expected to start positively, influenced by global market trends. However, trading may be cautious due to upcoming key market events and economic data releases.
Building approvals numbers are significant because they provide insight into the non-mining economy's growth prospects. A further fall in approvals could confirm the need for a rate cut by the RBA, impacting investor strategies.
A stronger than expected building approvals report could lead to a shift in interest rate market expectations, potentially reducing the current 60% chance of a rate cut by the RBA.
If the RBA cuts rates or shifts to an easing stance, the Australia 200 index could potentially reach the 6,000 level for the first time since early 2008, driven by increased investor interest in yielding stocks.
The Australian dollar's value, particularly around 78 US cents and 93 Japanese yen, makes yielding Australian shares attractive to international investors. Lower interest rates could further pressure the AUD, supporting local stocks.
Investors are focusing on yielding stocks and sectors, anticipating that a rate cut by the RBA will enhance the attractiveness of these investments.
For further commentary on the current market situation, you can contact Michael McCarthy at CMC Markets by calling 02 8221 2135.
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