Local traders have over looked the 1% decline in US markets on the last trading day of the year. While there is some profit taking in bank stocks in early trade, other sectors are holding the line as investors appear content to hold positions ahead of key data later in the week. The energy sector has had a strong start as markets react to escalating tensions in the Middle East.
News that Saudi Arabia has cut diplomatic relations with Iran has led to short covering in early trading on the oil market as traders build risk premium into prices. While there is no immediate threat to production implied by this situation, political unrest that directly impacts major OPEC producers is unsettling. Oil markets will be concerned that this could be an incremental step in a deteriorating political situation that might ultimately threaten world oil supply.
The CoreLogic RP house price index for December provides further evidence that Sydney house prices have peaked. This will be welcome news for the RBA, making it more likely that interest rates will be left on hold in the early part of 2016. A softer housing market in Sydney and Melbourne suggests the property market is following the stock market after a lag; as it often does. This may lead to relatively flat property markets for some time.
The pace of US interest rate increases and China’s growth rate will be core themes for markets in 2016. Traders will get key information on both these issues later in the week. Monthly data on the Chinese economy and US jobs data are scheduled for release on Friday. Markets may be relatively cautious in advance of these releases.