US Dollar the key to stock market moves
The stock market looks likely to open on a firm footing this morning after a big rally in US markets. The early response of the Australian market to the big US move may be restrained by the fact that Asian markets had a significant rally yesterday, meaning the US was to some extent playing catch up.
The key to today’s trading is likely to be whether there is follow through buying of “yield” stocks like CBA and Telstra which was a big feature of yesterday’s market. The strength of the $A may be a complicating factor here, potentially making offshore investors a little more cautious about Australian stocks this morning.
Since last Friday’s strong US Non-Farm Payroll data, world markets have been driven by expectations of an early start to the Fed’s rate hike program. Last night’s US retail sales data has shifted thinking on this, adding an element of risk to the early rate hike scenario. The market will look through the impact of February’s cold weather on upcoming US data. Even so, the retail sales figure was surprisingly weak and follows weak numbers in November and December. This creates concerns that low wage growth is continuing to keep a lid on growth and inflation in the US economy and has investors factoring in the risk of a later and slower approach to Fed monetary tightening than seemed likely earlier in the week.
As far as equity markets are concerned, any follow through in US Dollar selling may reverse the scenario of the last couple of days. If the US Dollar continues to correct lower, stock markets outside the US may rally less than US markets. A weaker Dollar will take pressure off US company revenues and lessen the comparative advantage of companies elsewhere.
Resource stocks are likely to be a soft patch for our market on the open with lower oil prices and ongoing reaction to disappointing data on China’s economy likely to weigh on investor thinking.
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Frequently Asked Questions about this Article…
The US Dollar plays a crucial role in stock market movements. A weaker US Dollar can reduce pressure on US company revenues and lessen the comparative advantage of companies outside the US, potentially leading to less rally in non-US markets compared to US markets.
The Australian stock market is influenced by the recent rally in US markets and the strength of the Australian Dollar. Offshore investors might be cautious due to the strong Australian Dollar, and the market is also reacting to the performance of yield stocks like CBA and Telstra.
Yield stocks like CBA and Telstra are significant because they were a major feature of the previous day's market. Investors are watching to see if there will be continued buying interest in these stocks, which could influence overall market performance.
US economic data, such as the Non-Farm Payroll and retail sales figures, significantly impact global markets. Strong payroll data initially suggested an early Fed rate hike, but weak retail sales have introduced uncertainty, affecting investor expectations and market movements.
Resource stocks are expected to face challenges due to lower oil prices and disappointing economic data from China. These factors are likely to weigh on investor sentiment and could lead to a softer performance in the market.
A potential delay in the Fed's rate hike program could lead to a slower approach to monetary tightening. This scenario might influence investor expectations and market dynamics, as it suggests continued low interest rates for a longer period.
US retail sales data is important because it provides insights into consumer spending, a key driver of economic growth. Recent weak retail sales figures have raised concerns about low wage growth and its impact on growth and inflation, influencing investor decisions.
The performance of Asian markets can affect the Australian stock market, as seen with the significant rally in Asian markets. This rally may restrain the Australian market's response to the US market's movements, as it suggests that some gains have already been priced in.
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