The Australian share market is caught in conflicting currents. European and US share markets continued their rallies overnight, still buoyed by Fed Chair Yellen’s dovish comments. However, there is pressure on local banks generally, and ANZ in particular, as traders continue to speculate on the potential for a bad debt spiral.
It’s not just shares. The potential for a slower upward path for US interest rates is knocking the USD lower. This in turn is supporting commodity prices, leading directly to last night’s 5-6% rallies in overseas listings of BHP and Rio shares. Combined with a net draw on oil supplies in the weekly US data, resources are set to rally across the board in trading today.
However, the swing factor in trading will likely be the financial sector, and the big four banks in particular. Traders appear to have extrapolated last week’s modest increase in bad debt provisioning to infinity. Given the financials’ dominance of the index the most important question today is whether or not bank selling returns. Today is both month and quarter end, and the sector is vulnerable to window dressing due to a number of local and international short positions.