Weak US markets wrong foot local markets
Against a background of ongoing volatility and large market swings, investors are unsettled by the fact that US markets gave up early large gains to finish down last night. The Australian market, which staged a strong rally has potentially been wrong footed by this move, at least to begin with.
The positive announcement impact of China’s interest and reserve ratio cut proved to be short lived. In many senses this is a logical reaction. The latest rate cut is the fifth in a series of rate cuts that has seen rates fall from 6% to 4.6%. The general outlook is for this latest initiative to be another in a series of stimulus initiatives that have further to play out. In that sense the latest China’s latest cuts to interest rates and bank reserve ratios is not fresh news. Stimulus will help the economy but can be seen as only offsetting existing headwinds in the form of property and manufacturing oversupply as well as a debt overhang in some sectors of the economy. The lagged impact of stimulus may mean that it’s some time yet until China’s overall growth can be expected to improve.
The weakness in US stocks last night also hints that the fact that this downturn is about more than just a reassessment of China’s growth outlook. It’s now some time since the US stock market has had a major correction. This makes it vulnerable to volatility once some large moves have started and markets are concerned that it could take some time for things to settle down.
Today will be one of those trading days when large moves in either direction are a real possibility. China’s mainland stock market behaviour and today’s Construction Work Done report are on the trader’s watch list. The construction report will provide insight into Australia’s second quarter GDP with analysts hoping the non-residential and engineering sectors will not prove too much of a drag on residential building.
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Frequently Asked Questions about this Article…
The US markets experienced a downturn despite early gains due to ongoing volatility and concerns about a broader economic reassessment beyond just China's growth outlook. This has made the market vulnerable to large swings and corrections.
The Australian market, which had staged a strong rally, was potentially wrong-footed by the US market downturn. This means that the positive momentum in Australia might be challenged by the negative sentiment from the US.
China's interest rate and reserve ratio cuts initially had a positive impact, but this was short-lived. The cuts are part of a series of stimulus initiatives aimed at offsetting economic headwinds like property oversupply and debt overhang.
The latest rate cut by China is not considered fresh news because it is the fifth in a series of cuts, reducing rates from 6% to 4.6%. It is seen as part of ongoing stimulus efforts rather than a new development.
The current concerns regarding the US stock market include its vulnerability to volatility and the potential for a major correction, as it has been some time since the last significant downturn.
Traders are closely watching China's mainland stock market behavior and the Construction Work Done report, which will provide insights into Australia's second quarter GDP and the performance of various sectors.
China's economic stimulus, including interest rate cuts, is expected to help the economy but may only offset existing challenges like property oversupply and debt. The overall growth improvement might take some time to materialize.
The Construction Work Done report is expected to provide insights into Australia's second quarter GDP. Analysts are particularly interested in how the non-residential and engineering sectors might impact residential building growth.
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