US profit taking; risk off selling and weaker Aussie spell tough going

It seems the Australian stock market can’t take a trick recently. Having suffered recently as banks were sold off and commodity prices faltered, it may struggle today in the face of profit taking on US markets and a general risk off sentiment.

It seems the Australian stock market can’t take a trick recently. Having suffered recently as banks were sold off and commodity prices faltered, it may struggle today in the face of profit taking on US markets and a general risk off sentiment.

US stocks set a weak lead for this morning’s opening. US valuations have been pushed closer to the peaks of last year as the dollar weakened and the market adjusted to a continuation of the “Goldilocks” low rate environment after Janet Yellen’s speech last week. With the US profit reporting season about to begin, higher valuations have made markets more vulnerable to profit taking.

Ongoing buying of bonds and the Japanese Yen together with last night’s rally in gold, point to underlying risk off sentiment in markets. This is likely to temper any optimism on the local market this morning.

Yesterday’s weak trade data and a mention in the RBA statement proved to be an unfortunate combination for Aussie dollar bulls yesterday. The RBA’s mention that an appreciating currency could complicate the adjustment under way in the economy could hardly be described as jawboning; more a subtle warning than a tongue lashing.  However, it was well timed, following a significant rally in the Aussie dollar and coinciding with weak trade data to produce a significant sell-off.

The weaker Aussie dollar may feed into a sell Australia attitude for international investors. This may make it difficult for a significant recovery in bank share prices to emerge at this stage.

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