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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Frequently Asked Questions about this Article…
Investors are starting the week cautiously due to weaker than expected US industrial production data and ongoing concerns about the Greek debt situation. These factors contribute to uncertainty in the markets, prompting a cautious approach.
Weaker US industrial production suggests that the Federal Reserve's first rate hike might be delayed by several months. This delay supports equity valuations but also indicates a subdued outlook for global growth.
The Greek debt situation currently poses a low probability of being a serious threat to international market stability. However, it may cause short-term caution among traders as deadlines approach and financial resources dwindle.
The 5750 level in the ASX 200 index is significant because it represents a key resistance point. The index made major lows at this level in March and April, and moving above it could indicate a loss of recent downward momentum.
If the ASX 200 index remains below 5750, it suggests that last week's rally might just be a correction within the current downtrend, rather than a reversal of the downward momentum.
The current market situation, with subdued global growth outlook and delayed Fed rate hikes, suggests that any demand-led recovery in commodity markets is still some time away.
Short-term traders should consider the approaching deadlines and financial constraints in the Greek debt situation, as these factors may provide reasons for caution in the current market environment.
For further commentary on the market situation, you can contact CMC Markets at 02 8221 2137.
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