Global Bulls vs Local Bears

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.

By Michael McCarthy · 31 Mar 2016

By Michael McCarthy ·
31 Mar 2016

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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.

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Frequently Asked Questions about this Article…

Why are European and US share markets rallying?

European and US share markets are rallying due to dovish comments from Fed Chair Yellen, which have boosted investor confidence and supported market growth.

What is causing pressure on Australian banks, particularly ANZ?

Australian banks, especially ANZ, are under pressure due to trader speculation about a potential bad debt spiral, which is affecting investor sentiment and market performance.

How are US interest rates impacting the USD and commodity prices?

The potential for a slower upward path for US interest rates is causing the USD to weaken, which in turn is supporting higher commodity prices and leading to rallies in shares of companies like BHP and Rio.

What factors are contributing to the rally in resource stocks?

Resource stocks are rallying due to a combination of a weaker USD, higher commodity prices, and a net draw on oil supplies in the weekly US data, which is boosting investor confidence in the sector.

Why is the financial sector a swing factor in today's trading?

The financial sector is a swing factor because of its dominance in the index and the potential for bank selling to return, influenced by last week's increase in bad debt provisioning and the end-of-month and quarter window dressing.

What is window dressing and how does it affect the financial sector?

Window dressing is a strategy used by fund managers to improve the appearance of a portfolio before reporting periods. It can affect the financial sector by increasing volatility, especially when there are local and international short positions.

How are BHP and Rio shares performing in overseas markets?

BHP and Rio shares experienced 5-6% rallies in overseas markets, driven by higher commodity prices and a weaker USD, which are boosting investor sentiment.

What is the significance of the end-of-month and quarter for the share market?

The end-of-month and quarter is significant for the share market as it can lead to increased volatility and trading activity due to portfolio adjustments and window dressing by fund managers.