Traders on Christmas rally alert

US investors decided to get ahead of the curve pushing stocks higher ahead of key market events including Janet Yellen’s speech tonight and the ECB decision on Thursday.

US investors decided to get ahead of the curve pushing stocks higher ahead of key market events including Janet Yellen’s speech tonight and the ECB decision on Thursday.

Local traders will be on alert for the possibility that this sentiment continues fuelling further gains in our market today. This is not a given. The fact that our market moved in advance of the US yesterday, combined with another drop in spot iron ore prices and a stronger $A could dictate early caution. However, if the index starts to push past recent highs at 5285 at any stage over coming days, fear of missing out on Christmas rally is likely to see yesterday’s upward momentum resume.

Assuming that economic change will be slower and shallower than anticipated has generally been a good rule of thumb for the post GFC recovery. This was again on display with a disappointing read in the US manufacturing index last month. Stock markets appear to be positioning for the possibility that Ms Yellen will also emphasise caution about the pace economic recovery and Fed rate hikes in her speech tonight, potentially noting the risk of the currency appreciating too fast. This outcome would suggest continued valuation support from the Fed for stock markets for some a while yet.

Currency appreciation is also becoming a factor for Australian markets with another strong session for the Aussie Dollar defying the odds of a weaker iron ore price. Some of the recent green shoots in the Australian economy such as the improvements in the manufacturing and tourism industries have been dependent on a weaker $A. News of a better than expected September quarter GDP today could fuel recent upward momentum in the Aussie.  

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