MARKETS SPECTATOR: Bulls penned

The bulls had their horns pulled overnight, failing to charge into a significant rally and indicating the recent correction may continue. Back home, finance stocks are poised to rise if rates are cut again.

The major US indices gave up strong early gains overnight to finish the session mixed despite a stronger-than-expected ISM Manufacturing report and confirmation from Ben Bernanke that the Fed would keep interest rates near zero even once the economy shows serious signs of recovering.

The concentrated Dow Jones Industrial Average was the best performer, adding 0.58 per cent while the S&P 500 rose 0.23 per cent. The NASDAQ finished in the red, down 0.07 per cent as the likes of Apple and Microsoft weighed.

The price action seen overnight, especially in the S&P 500 is starting to look a little top heavy. The bulls pushed it to an early session high of 1457 but couldn’t maintain it there as participants took the chance to offload stock. This basically shows a rejection of higher prices and could be a sign that there is more to come from this recent correction.

Locally, it looks like the benchmark S&P/ASX 200 index is set for a slightly higher start with SPI futures calling it to open around the 4406 level or about 0.35 per cent than yesterday’s close. However, given the selling pressure seen from the highs during US trade there could be some downside risk.

The materials sector looks like it will once again lead the way after the big diversifieds had a strong session in London; BHP Billiton added 2.6 per cent and Rio Tinto 1.8 per cent respectively. BHP’s ADR in the US are pointing towards a rise of around 0.6 per cent at the start of trade. Base metals on the LME look supportive too, all finishing flat and 1.3 per cent higher for Nickel. With China closed for the Golden Week holiday, the iron ore spot index is closed but was last at $US104.20/t.

Elsewhere gold and oil names should be reasonably well supported after the precious metal rose another 0.5 per cent to $US1783.50/oz. and crude oil added 0.3 per cent to $US92.48/bbl.

The big news today is obviously this afternoon’s Reserve Bank of Australia interest rate decision at 2.30pm AEST. As of yesterday afternoon the interest rate futures market was pricing in a strong chance of a 25 basis point rate cut. However, economists surveyed around the country were far less optimistic with most believing the cut won’t come until Melbourne Cup day next month.

Either way, traders will be keeping a close eye on interest rate sensitive stocks like financials and consumer discretionary names. On the chance they do lower interest rates, it’s going to make the yields on our top dividend paying stocks even more attractive and in turn, probably push them higher as more money flows towards them.

Looking at the local currency and there is not too much extra information we can gain as it doesn’t look to be getting ahead of today’s announcement. It’s currently trading around the 1.0365 mark and looks to be range bound between 1.04 and 1.0350.

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