It's all about the banks
Strong buying of the big four banks has been the main driving force behind the 4% rally in the ASX 200 index this week. Buying of bank shares has had some real urgency about it over the past three days. You’d have to think that short covering is in the mix, fuelling this rally in bank shares. Whether or not this continues today is likely to hold the key to how the index finishes the week.
Another strong rally in the Aussie Dollar overnight will offset some of the benefits of firm commodity prices for investors. After last night’s gains, the Aussie Dollar is now within sight of a key zone of chart resistance that begins with the October and December peaks around .738.
The catalyst to renewed confidence in the Aussie Dollar this week was better than expected GDP growth. Solid growth in household consumption underpinned the December quarter growth and Aussie Dollar bulls will want to see this carried through into the January retail sales data due for release this morning.
Overall, it would not surprise to see traders finish the week on a cautious note ahead of China’s Peoples’ National Congress this weekend and US jobs data tonight. The question of where China’s authorities stand on the balance between short term economic stimulus and longer term structural reform is a key issue for world markets. Markets will be looking for further insight into this in the release of economic growth targets and the draft five year growth plan.
Frequently Asked Questions about this Article…
The strong buying of the big four banks has been the main driving force behind the 4% rally in the ASX 200 index this week. This surge in bank shares is likely fueled by short covering, adding urgency to the buying activity.
A strong rally in the Aussie Dollar can offset some benefits of firm commodity prices for investors. The recent gains have brought the Aussie Dollar close to a key resistance zone, affecting investment strategies.
Better than expected GDP growth has renewed confidence in the Aussie Dollar. Solid growth in household consumption underpinned the December quarter growth, and investors are keen to see if this trend continues with the upcoming retail sales data.
Investors should be cautious ahead of the US jobs data release, as it can significantly influence market sentiment and investment decisions. The data will provide insights into the US economy's health and potential impacts on global markets.
The China People's National Congress is crucial as it will provide insights into China's economic growth targets and the balance between short-term stimulus and long-term structural reform. These factors are key issues for world markets and can influence global investment strategies.
Household consumption is a significant driver of economic growth, as seen in the December quarter's better than expected GDP growth. Strong household spending can boost confidence in the economy and influence currency strength.
Short covering can lead to a rapid increase in bank share prices as investors buy back shares to cover their short positions. This activity adds urgency to buying and can drive significant market rallies.
Investors might adopt a cautious approach at the end of the week due to uncertainties surrounding the China People's National Congress and the US jobs data. These events can introduce volatility and impact market trends.
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