Bourse tipped to drift after subdued offshore trading

THE sharemarket is expected to open marginally weaker today in the absence of a strong lead from the US.

By InvestSMART · 26 Mar 2012

By InvestSMART ·
26 Mar 2012

Comments

THE sharemarket is expected to open marginally weaker today in the absence of a strong lead from the US.

The AMP Capital Investors head of investment strategy and chief economist, Shane Oliver, said futures trading pointed to a 12-point, or 0.3 per cent, fall on the benchmark ASX 200 index today.

While a modest rise on European and US markets on Friday was driven by gains in financial stocks and commodity stocks due to a high oil price, there was "not a lot of action on Wall Street", Dr Oliver said.

"Housing data out of the US was on the soft side, with home sales down, so it's a fairly weak lead for our market," he said.

On Wall Street on Friday, the Dow Jones Industrial Average closed up 34.59 points, or 0.3 per cent, at 13,080.73 points. The S&P 500 index added 4.33 points, or 0.3 per cent, to 1397.11 points and the tech-heavy Nasdaq Composite rose 4.6 points, or 0.1 per cent, to 3067.92.

Dr Oliver said most commodities prices had rebounded mildly on the London Metal Exchange on Friday after falling on Thursday, which should provide support for local resources stocks. "We might see a bit of strength in some of the miners offset by weakness in other parts of the market," he said.

"The oil price was up 1.3 per cent and of course, that's a double-edged sword: on the one hand, it's good because commodity prices are up but on the other hand, it's bad because it slows global demand."

Oil prices rose following a report that Iranian oil exports had fallen substantially this month.

Copper, which is seen as the bellwether for industrial metals demand, was also up 1.1 per cent in London trading on Friday.

While the futures market pointed to a softer open on the bourse today, it could manage a flat albeit subdued performance, given the futures market "hasn't been a great guide lately", Dr Oliver said. The ASX 200 index has been struggling below the 4300-point level for some time.

"The Australian market won't break out until either we see some combination of a definitive [monetary policy] easing in China ... or [a] monetary easing in Australia with the Reserve Bank cutting interest rates, or a much weaker Australian dollar," Dr Oliver said.

AAP

Go to Google News, then click "Follow" button to add us.

Share this article and show your support

Frequently Asked Questions about this Article…

What is the ASX 200 expected to do at today's open?

Futures trading pointed to a marginally weaker open for the ASX 200, roughly a 12-point or 0.3% fall. However, AMP Capital's Shane Oliver noted futures haven't been a great guide lately, so the market could still manage a flat but subdued performance.

Why did offshore markets give a weak lead to the Australian sharemarket?

The lead from the US was fairly weak because there wasn't a lot of action on Wall Street and US housing data showed softer home sales. While there were modest gains in Europe and the US driven by financials and commodity stocks, the overall offshore signal for the Australian market was subdued.

How do commodity price moves affect Australian resources stocks and miners?

Commodity prices rebounded mildly on the London Metal Exchange, with copper up about 1.1% and oil rising roughly 1.3%. That typically supports local resources stocks and some miners may strengthen, but gains in commodity prices can also slow global demand, so any miner strength could be offset by weakness elsewhere.

What drove the recent rise in oil prices and what does it mean for investors?

Oil rose about 1.3% after reports that Iranian oil exports had fallen substantially this month. For investors, higher oil can boost energy and commodity-related stocks but is a double-edged sword because sustained higher oil can slow global demand and pressure other parts of the market.

Are futures a reliable indicator of how the sharemarket will open?

Not always. As Shane Oliver highlighted, the futures market hasn't been a great guide lately. Futures indicated a softer open, but the actual market can still be flat or move differently once local trading starts.

What would it take for the ASX 200 to break out above the 4300 level?

According to AMP Capital's Shane Oliver, the Australian market is unlikely to break out until we see one or more of the following: clear monetary policy easing in China, monetary easing in Australia (for example an RBA interest rate cut), or a much weaker Australian dollar.

How did major US indices perform and why does that matter for Australian investors?

On the reported trading day, the Dow closed up 34.59 points at 13,080.73, the S&P 500 added 4.33 points to 1,397.11, and the Nasdaq rose 4.6 points to 3,067.92. These modest US gains, driven partly by financials and commodities, provide only a mixed and limited lead for Australian markets.

Which sectors should everyday investors watch when markets are subdued?

Watch the resources and miners for possible strength on commodity rebounds (like copper and oil), but also monitor cyclical and consumer-sensitive sectors because things like higher oil prices or weak offshore housing data can weigh on demand and cause weakness in other parts of the market.