S&P/ASX 200 Fundamental Analysis – August 30, 2016 – Forecast

The S&P/ASX 200 posted a negative close on Monday as traders reacted to Friday’s hawkish Fed comments and a disappointing Australian earnings season. The index broke below the psychological 5500.00 level on Monday, closing at 5469.2, down 46.3 or -0.84 percent.

A stronger dollar led to lower commodity prices which also encouraged investors to sell mining and natural resource stocks, driving down those sectors.

Early in the session, the ASX 200 felt pressure from comments made by Fed Chair Janet Yellen and Fed Vice Chair Stanley Fischer on Friday. Yellen thought the case for an interest rate had strengthened, however, her tone did not indicate that a rate hike was imminent. Fischer, however, was hawkish, saying that two rate hikes in 2016 were possible.

Traders were disappointed with domestic stocks because of weak revenue growth, slower cost cuts and lower pre-tax margins.

On Tuesday, ASX 200 traders are likely to react to the movement in U.S. interest rates, U.S. stock indices and the direction of the U.S. Dollar since there isn’t much domestic data this week. The key report this week from the U.S. is Friday’s Non-Farm Payrolls report.

Higher U.S. interest rates will be supportive for the U.S. Dollar. This will also serve as an indication that a Fed rate hike in September is still in the cards. As recently as Friday, Fed Fund futures indicated there was an 18 percent chance of a Fed hike next month. That percentage rose to 30 percent early Monday.

Early losses by the ASX 200 can be expected, but they will be limited because of the higher close by the benchmark S&P 500 Index.

Today’s price action is likely to be the most volatile as many investors will start to pack it in ahead of Friday’s U.S. jobs report.