The Australian share market index appears headed for the lower end of the 4900-5400 trading range as fear dominates market action. The focus is China, but in the current hyperbole fuelled panic, otherwise market neutral events like another North Korean nuclear test or sabre rattling in the Middle East become yet another reason for investors to dump their holdings.
Evidence of sentiment’s dominance lies in market reactions to yesterday’s further weakening of the Chinese Yuan. In neutral or bullish times, central bank stimulus is a positive for shares. Instead of a positive response to the currency weakening, investors reacted to the signalling aspects of the move, and sold shares.
Energy markets plunged towards post GFC lows, with WTI oil falling below $34 a barrel a pushing technical traders to a view that a test of $32.70 is coming. While falling input costs are generally good news for companies, the market reaction today is more likely to focus on a further sell down of oil and gas stocks.
In this environment data releases are likely to provoke either selling or no response, meaning if today’s local building approvals data comes in at or below estimates of a 3% fall in November it will likely spur further selling. An unlikely rise of 5% or more may be required to short circuit selling, and even then it is possible markets will dismiss a rise and sell regardless.