S&P/ASX 200 Fundamental Analysis – August 18, 2016 – Forecast

S&P/ASX 200 Fundamental Analysis – August 18, 2016 – ForecastThe S&P ASX/200 was set to open flat after a tumultuous day on Wall Street. Wild price swings in the U.S. equity indices after the release of the U.S. Federal Reserve minutes from its July meeting could set a volatile zone in the Australian share market.

After an unpredictable start, conditions are likely to calm as investors shift their focus back to domestic jobs data and a slew of corporate results.

While investors will likely be focused on the July jobs data early in the session, the direction the rest of the day will likely be driven by earnings results, like they have been since early in the month.

The main market drivers this week have been natural resources stocks such as BHP Billiton, which reported a record loss on Wednesday and banking sector stocks, which are closely tied to the direction of interest rates.

Today’s earnings will be spread among several sectors with earnings coming from Tatts Group Limited (ASX: TTS), a wagering, lottery and gaming industries stock and Origin Energy Ltd (ASX: ORG) along with Brambles Limited (ASX: BXB), a supply-chain logistics group and AMP Limited (ASX: AMP), a financial services company.

Investors will also get the opportunity to react to the Australian Employment Change and the Unemployment Rate reports.

The Employment Change report will tell investors the change in the number of employed people during the previous month. A number greater than the forecast is good for the economy and the currency. It is expected to show an increase of 10.2K. The previous reading showed a 10.8K gain. It has been known in the past to be quite volatile.

A number substantially greater than the 10.2K estimate will likely underpin the S&P/ASX 200 index, but not necessarily fuel a strong rally because of the large numbers of earnings report.

The Unemployment Rate report is the percentage of the total work force that is unemployed and actively seeking employment during the previous month. A number less than the forecast will actually be good for the economy and the currency. It is expected to come in at 5.8%, equaling June’s reading of 5.8%.

In summary, several factors will influence the S&P ASX/200 price action today and at various times. We could see a flat opening as investors try to digest the Fed news from the U.S. and its impact on the Australian Dollar. Secondly, we are likely to see a short-lived reaction to the Australian labor market news. Thirdly, and most important, investors are likely to react more to the large numbers of earnings reports.

The number of ways we can combine the major influences today and the wicked swings on Wall Street suggest that investors should brace for volatility especially because of the growing divergences in monetary policy between the Fed and the Bank of Australian. Ultimately, the direction of the index over the near-term will be determined by whether investors decide today is going to be “risk on” or “risk off”.