Will markets take a breather?

With little in the way of macro drivers to influence investor outlook overnight, today’s market is likely to be about whether or not last week’s buying momentum can be sustained. Market action suggests buyers may need a catalyst to change their outlook before taking the overall market significantly higher at this stage.  The ASX 200 index has started to move broadly sideways over the past three days and yesterday failed to move convincingly past resistance formed by the peaks of the last few weeks. 

Retail stocks generally had a good day yesterday following news of stronger than expected retail sales volumes for the June quarter.  A key question for stocks in this sector will be how much of this transpires to be have been due to small business buyers bringing planned purchases forward to take advantage of the new depreciation allowances in the last financial year.

While the immediate market impact of yesterday’s RBA statement was to produce a rally in the Aussie Dollar, it also provided some insight into the environment in which share investors are currently operating. Yesterday’s statement gave a strong hint that the RBA now thinks that the Australian economy’s trend growth has declined. For share investors this is a reminder that the economy and therefore corporate profits are now in a long, grinding low growth phase.

Mining and energy stocks have been a drag on the overall index in recent days. These sectors may get some relief from trading in commodity markets which generally stabilised in international markets overnight. However, the energy sector was still one of the weakest on US markets overnight with the S&P 500 Index’s energy stocks finishing 0.5% lower. 

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