S&P/ASX 200 Fundamental Analysis – September 14, 2016 Forecast

Australian shares fell for a fourth-straight session on Tuesday, with the S&P/ASX 200 closing at 5207.80, down 11.81 points or -0.20 percent. It was the lowest finish since the index closed at 5197.50 on July 6. Traders blamed a decline in financial and energy stocks for the weakness.

Although the U.S. markets posted a strong gain on Monday due to dovish comments from a key Fed official, the move was attributed to short-covering and didn’t carry over to the ASX 200. The price action also suggests that investors remain jittery about the direction of U.S. interest rates ahead of next week’s Federal Reserve Monetary Policy Committee meeting on September 21.

By shedding risky assets, Aussie share traders appear to be nervous about the outcome of the Fed meeting, however, U.S. Fed Funds traders are showing a 15% chance of a September rate hike and a 50% chance of a rate hike in December.

Locally, financial stocks were responsible for more than half of the losses on the ASX 200, with the “Big Four” banks weakening between 1 percent and 1.3 percent. The catalysts behind the selling pressure were concerns over earnings growth and competition.

A steep drop in crude oil prices weighed on energy stocks. Share prices tumbled to their lowest level in two months, led by Oil Search which fell 2 percent.

S&P/ASX 200 DAILY FORECAST

Australian stock market investors are bracing for a lower opening on Wednesday, due to the sharp sell-off in U.S. equity indices. U.S. markets plunged sharply lower as the positive reaction to dovish comments from a noted Fed official on Monday faded and as investors faced the reality of a lower crude oil prices due to a forecast for lower demand.

U.S. listed shares of BHP Billiton fell more than 5 percent in New York, with Rio Tinto’s U.S. –listed stock falling more than 4 percent.

In addition to the drop in crude oil prices, iron ore fell 2.9 percent. This put pressure on the energy and commodity sectors of the broad index.

Investors should note that volatility is back after a two-month absence following the Brexit vote. The benchmark S&P 500 Index traded 43 sessions without a 1 percent move. However, the last three trading sessions has seen the VIX (Volatility Index) jump 17.7 percent. Over the short-run, this should be a concern, but it is actually right on pace with its one-year average.

The early call for Wednesday is for a 0.50 percent lower opening. This would put the S&P/ASX 200 at about 5182.00. BHP and CBA are two stocks expected to lead the broader-based index lower. They are called 1.6 percent and 0.5 percent lower, respectively.