Banks the key to today's trading

If the Australian market follows the US lead today, we will be in for a consolidation session. Traders are showing signs of settling down to wait on next week’s Fed decision.

However, investor attitude towards bank stocks may be the key to today’s trading. Major bank stocks closed well above their lows yesterday. This appeared to reflect a re think on the implications of yesterday’s strong jobs data. The falling unemployment rate will help reduce risks in the housing market.  While, the improving labour market clearly increases the chances that the RBA has finished cutting rates, bank valuations have arguably adjusted already for the early stages of a rate increasing cycle. If anything this stage of the cycle can make it easier for banks to maintain margins.

Commodity prices slipped further overnight despite the absence of significant news. However, mining and energy stocks have shown signs of stabilising in recent days. The energy sector was up in US markets even though prices fell. A similar performance on the local market would help the prospects of a consolidation day for the ASX 200 index.