It's getting hard to believe in Santa
Friday’s sharp fall in US markets, leaves the strong gains earlier in the week looking like just another episode in the volatile range trading that has characterised markets over recent weeks. Hopes that a year-end rally was getting under way have been dashed. Even if it does materialise, any year-end rally may be just more range trading, rather than the beginning of a concerted push above resistance.
Friday’s sell-off underscores the difficulty the US stock market currently has in playing its traditional role as leader of world market rallies. US valuations are full already. This makes the US market vulnerable to risk off moves. Gains from current levels are also likely to be more a case of grinding higher in line with earnings growth as opposed to trending strongly higher on valuation expansion.
European markets are likely to be focussed on the results of the Spanish election. Early indications that Spain will be governed by an unwieldy coalition will increase the political risk to markets from this pivotal European economy.
The local market is in for a nervous start to the week. However, indications are that the ASX200 index will remain inside Thursday’s range. This will continue Friday’s pattern of consolidation as opposed to indicating a major reversal at this stage.
The weekend news for commodities was mixed. Oil prices were weaker, however iron ore has remained firm in recent days and copper jumped sharply on the possibility that China will increase inventory levels.
News that all 163 nations in the WTO have agreed to end agricultural subsidies may be supportive for Australian agricultural exporters in the longer term. However, the devil may be in the detail of how some nations get around this deal. Even so, the WTO agreement is a sign that attitudes toward liberalising agricultural trade are headed in the right direction and follows positive news for the sector from recent free trade agreements.
Frequently Asked Questions about this Article…
The recent sharp fall in US markets is part of the volatile range trading that has characterized the markets over recent weeks. Despite earlier strong gains, hopes for a year-end rally have been dashed, highlighting the difficulty the US stock market faces in leading global market rallies.
The US stock market is currently vulnerable to risk-off moves due to full valuations. Any gains from current levels are expected to be gradual and in line with earnings growth, rather than driven by valuation expansion.
The results of the Spanish election could increase political risk in European markets, especially if Spain is governed by an unwieldy coalition. This situation could affect market stability in this pivotal European economy.
The ASX200 index is expected to remain within Thursday's range, continuing a pattern of consolidation rather than indicating a major reversal. This suggests a nervous start to the week for the local market.
Commodity prices have shown mixed results recently. Oil prices have weakened, but iron ore remains firm, and copper prices have jumped sharply due to the possibility of increased inventory levels in China.
The WTO agreement to end agricultural subsidies could be supportive for Australian agricultural exporters in the long term. However, the impact will depend on how nations implement the deal, as some may find ways around it.
The WTO agreement is a positive sign that attitudes toward liberalizing agricultural trade are moving in the right direction. It follows recent positive developments from free trade agreements, indicating a trend towards more open agricultural markets.
Investors face potential risks from political uncertainties in Europe, particularly related to the Spanish election, and from the US market's vulnerability to risk-off moves due to full valuations. Additionally, mixed commodity prices add another layer of complexity to the investment landscape.
Call 1300 880 160
Start a chat
Schedule a call
