Global Markets Overview – 11/20/13

Markets continue to slide

The global pullback looks to be starting; European markets are moving back from five year highs, the S&P continues to shift away from its intraday all-time high as the DOW continues to shift sideways.

These are classic signs of market fatigue; the ASX has seen volumes remaining below average (only $4.1 billion changed hands yesterday) as the banks and the big miners are starting to find buyers becoming a rarity.

Commodities were hit pretty hard overnight with natural gas falling 1.3% and industrial metals also losing their appeal despite household data over the past week showing signs of sustained improvement. This will damp the ASX further having seen the cyclical plays holding the line of the past to trading sessions.

With the release of the RBA minutes yesterday three things are clear: the board is mindful of the rise in dwelling and retail lending and stated that interest rates are taking effect, however inflation and jobs growth remains subdued, as does the parts of the economy it needs to see improvement from.

Most concluded that interest rates are unlikely to move lower. However, because the board believes employment remains soft, the AUD remains above 93 cents and is 'above a comfortable level', and non-mining is still unable to pick up the slack left from the booming mining sectors, this is all causing the market to show the signs of fatigue and that P/E expansion.

With earnings questions being raised on a regular basis, once the market hits five and a half year highs the first half earnings season in January/February will ask serious questions as to where the ASX is going on a fundamental level. I believe that sentiment wants the market to go higher, however the question is; is it being backed by company fundamentals? This will be answered at the start of next year and may see some continued weakness if the numbers don't stack up.

It is for this reason I believe sideways trading in the short term is highly likely.

Ahead of the Australian open

Ahead of the open we are calling the ASX 200 down 29 points to 5330, down 0.54%, as the downward momentum continues. BHP's ADR is suggesting the stock could fall 30 cents to $37.51 (-0.79%) as iron ore shifts lower.

With Fed Chairman Ben Bernanke speaking at 11:00 AEDT at an economic forum in Washington, there is a possibility of some USD moves. However that seems unlikely as the Fed's view on tapering remains elusive - with double speak becoming an art form.

As I stated yesterday, it is clear that QE will remain in its current form until December 31 - that much is clear. Therefore, even with hints of taper discussion or limits on the size of the Fed balance sheet in his speech, it's unlikely to change this view and moves should remain mild.

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