ASX futures points to 1.4% pullback after a week of strong gains
The S&P/ASX 200 index (XJO) soared 146 points to close at 6145 points yesterday, spurred on by strength in overseas markets.
With weakness across US, UK and European markets emerging overnight, it is likely that some profit-taking could emerge.
The ASX SPI200 futures index is down 86 points or 1.4% to 6098 points, but this comes after a week on week increase of about 350 points in the XJO.
However, looking at how things have played out over the last month or so, one could argue that the ASX could weather a retracement better than some overseas markets which appear to have run ahead of themselves.
While the Dow recovered nearly all of its loss ground since the onset of coronavirus and the NASDAQ posted a new all-time high, the XJO is still more than 1000 points shy of its pre-coronavirus high of 7197 points.
Hopefully our measured recovery will translate into a more subtle retracement.
Asia-Pacific markets were mixed yesterday with the Hang Seng being in sync with Australia’s bullish gains as it rallied 280 points or 1.1% to close at 25,057 points.
The Shanghai Composite also made a robust gain of 0.6%, closing at 2956 points.
The Nikkei 225 bucked the trend, shedding 87 points or 0.4% to close at 23,091 points.
As the UK and European markets came under the spotlight the mood changed despite there being scant news on the economic front.
The consensus appeared to be that markets were over-cooked and a correction was required.
The FTSE 100 fell 2.1% or 137 points to 6335 points, but it is still up marginally on a week-on-week basis.
A sharp drop in industrial production has triggered a downturn in Germany with the DAX shedding 201 points or 1.6% to close at 12,618 points.
However, outside of the US the DAX has been one of the best performing indices, and on a month on month basis it is still up by about 1800 points.
The CAC 40 also lost ground, falling 80 points to close at 5095 points.
While the Dow came off 300 points to close at 27,272 points, it is still up roughly 3500 points on a month-on-month basis, highlighting the speed of its recovery.
Similar to European markets, the decline appeared to be triggered by investors taking a ‘’too much, too soon’’ view of recent proceedings.
However, nothing can stop the NASDAQ express as it broke through the 10,000 point barrier during the day and closed at a new record high of 9953 points.
Not surprisingly, the CBOE Volatility Index rose nearly 7% to 27.6 points.
On the back of this volatility, there was a flight to gold as it rallied from about US$1700 per ounce to US$1720 per ounce.
Brent crude increased by nearly 1% to US$41.18 per barrel, and energy stocks have continued to rally following an agreement by OPEC to extend a global production cut for another month.
Iron ore pulled back slightly, down 1% to US$104.60 per tonne.
Copper recorded its fourth consecutive day of gains, increasing to US$2.58 per pound, up from about US$2.10 per pound in March.
It may be time to target low cost gold-copper producers, particularly given the precious metal is also holding up well.
Other base metals trended slightly lower.
The Australian dollar continues to move in a tight band between US$0.69 and US$0.70, and it is currently at the mid-point of that range.