ASX 200 Rises After Quiet Weekend 

Headlines: 

• ASX 200 recovers after calm weekend in the Middle East. 

• Signs of recovery first appeared late Friday. 

• Australia likely to take lead from United States equities this week. 

• Australia’s two biggest sectors, finance and mining both performed well on Monday. 

• Australian dollar continues to make exports cheap. 

The ASX 200 has been rising since the open on Monday morning, as tensions in the Middle East have cooled off, at least for the time being. Market participants around the world breathed a sigh of relief as the Iranians did not retaliate against the Israelis after the latest strike. 

Not only was the ASX 200 positive, but equities in general around the world were. The first glimpse of this would have been on Friday as the ASX bounced from the crucial 38.2% of but not you are to level which happened to coincide quite nicely with the AU$7500 level. By forming a hammer on Friday, it did suggest that people were willing to either step in and “buy value”, or at the very least were not comfortable being short of equities heading into the weekend.  

Has the trend in Australia resumed? 

The big question of course is whether or not the bullish sentiment has returned. In the United States, stocks had initially sold off, but it does look as if they are trying to find their footing as well. This could translate into a follow-through in the APAC region, especially if we can start to see a turnaround in commodities. It is worth noting that the gold markets sold off quite drastically in the futures markets during US trading, so that could be read as profit-taking, or it could be seen as a sigh of relief. 

Major corporates lead the way. 

During the Monday session, some of the biggest companies in Australia led the way for the ASX 200 to continue its bullish run. BHP group, the largest company on the exchange, gained 0.68% for the day, while Commonwealth Bank gained 0.91% as well. Ultimately, looking at the results of Monday trading, ANZ Bank was the only loser in the top 10 companies by market cap, and it dropped just 0.07%. Of particular interest on Monday would have been the returns not only in the banking sector, but also mining companies such as Macquarie (gain of 1.79%), Fortesque (0.77%), and BHP (0.68%).  

Australian Dollar Continues to Consolidate 

The Australian dollar continues to be rather choppy as the 0.6450 level has been fairly resistant. The Australian dollar has been struggling against the greenback for some time, mainly due to risk aversion and the Federal Reserve likely to keep interest rates higher for longer than anticipated. This could lead to headaches for Australian equities long term, as many of the largest multinationals in Australia are heavily reliant on cross-border trade and growth. If the Federal Reserve continues to keep monetary policy tight, it could create a certain amount of headwinds for risk assets in general, especially those tied to construction and lending. 

PMI Figures 

During the Tuesday session, Australian Flash Manufacturing PMI numbers, as well as Flash Services PMI numbers are released. Expected to be released at 11 PM GMT, these numbers could pave the way for volatility, although as of late they have not been drastic in extremes in one direction or the other. Traders will pay close attention to inflationary headwinds, as central banks around the world continue to try to fight rising prices. 

It is also prudent to pay close attention to inflationary numbers coming out the United States, as the world’s largest economy continues to fight its own inflation. As inflation rises in the United States, it can have a positive effect on Australian exports in the mining sector, but it can also have a detrimental effect on financial institutions. In general, markets seem to be trading on risk appetite and sentiment more than anything else. 

Currently, it appears that the AU$ 7500 level continues to be crucial in the ASX 200, and it seems to be an area where value hunters are willing to step in and buy equities again. On the upside, the AU$7900 level has offered a significant amount of resistance. 

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