Cautious start to the week

Investors are likely to start the week in cautious mode as markets assimilate the impact of weaker than expected US data and wait on developments in the Greek debt saga.

Weaker than expected US industrial production during April lends weight to the view that the first Fed rate hike now seems at least several months away. While this supports equity valuations, it also means that the outlook for world growth remains subdued. Any demand led recovery in commodity markets in particular looks some time off as yet.

Recent price behaviour indicates that markets attach a low probability to the Greek situation representing a serious threat to the stability of international markets. Nevertheless, the situation is likely to provide short term traders with a reason to be cautious as deadlines approach and the money runs out.

The 5750 level in the ASX 200 index will be a key focus for chart followers today. The index made two major lows here in March and April and these now represent resistance. If the index is able to move above this level, it will suggest that recent downward momentum is being lost. However, while the index remains below 5750, the safest interpretation of last week’s rally is that it’s simply a correction against the current downtrend.

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