MARKET SPECTATOR: Materials world

Friday's strength in the materials space looks to continue, as do energy sector rises, while profit taking is on the horizon.

Quickly recapping how markets finished last week, it was another strong session on Wall Street with all three of the major indices finishing firmly in the black as market participants continued to react to the last round of economic stimulus announced on Thursday evening. There was a slew of stronger-than-expected US economic data, which also helped sentiment on Friday.

The broad-based S&P 500 and Dow Jones Industrial Average both added 0.4 per cent while the tech-heavy NASDAQ rose 0.9 per cent. For the week the Dow Jones Industrial Average was the strongest, rising 2.15 per cent, while the S&P 500 and NASDAQ gained 1.9 per cent and 1.5 per cent respectively.

Turning our attention to the new trading week, it looks like it’s going to be a positive start to Monday trade. On the most basic level, the S&P/ASX 200 SPI futures are calling the benchmark index to open 20 points higher around the 4412 level, with materials and energy names likely to be the main drivers.

If US energy stocks are anything to go by then we should see some green on the screen among the local energy names as the prospect of further stimulus saw crude oil prices push higher, nudging the $US100/b mark once again before easing slightly. The US sector rose 1.3 per cent with the likes of ExxonMobil, Chevron and ConocoPhillips all up more than 0.6 per cent.

Not to be outdone, Friday’s strength in the materials space will likely continue as base metals soared on the London Metals Exchange and gold remained well bid – thanks to the restarting of the US printing presses, which naturally boosts the prices of anything quoted in US dollars. The US materials sector added 1.2 per cent while base metals were all up between 3.8 per cent and 6.2 per cent in London trade.

Diversified giant BHP Billiton will likely lead the way after it gained more than 6 per cent in London trade and US based ADRs rose 2.5 per cent, which usually translates into strong gains for the domestic ticker. Adding further fuel to the fire was the continued recovery of the iron ore spot price, which rebounded another 5.4 per cent to close at $US101.60/t.

Towards the end of last week many of the mid-cap miners were breaking out to the upside. This overnight strength should see that theme continue, especially the recovery among the much talked about iron ore players. There’s no doubt that Fortescue Metals Group is going to be front and centre over the next two days as the world waits to see what ‘rabbit in the hat trick’ Twiggy conjures up this time.

Gold stocks will likely remain well entrenched in their uptrends as traders continue to buy the precious metal to hedge against inflationary pressures caused by the latest stimulus measures. Gold finished Friday’s session at $US1769/oz.

So everything is pointing towards a positive start to the week but that’s doesn’t mean there aren’t downside risks. The markets have had a very strong run and are probably due for a pull back on many short term metrics. There’s unlikely to be a big reason for the pullback, rather just traders looking to lock in some of the recent gains. US markets were unable to maintain their highs on Friday, which showed some profit taking had already begun.

While there is a bit of economic news due both locally and internationally for the week, it pales into insignificance following the well talked about events of last week. Starting the week off on a slow note, Australian new car sales numbers are due for release at 1130 AEST and are very unlikely to have any impact whatsoever on trade unless there is a blowout figure in either direction.

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