S&P/ASX 200 Fundamental Analysis – September 6, 2016 Forecast

Despite this trading conditions due to the bank holiday in the U.S., the S&P/ASX 200 closed higher on Monday at 5429.60, up 56.80 or 1.06%. Buyers came in early in response to Friday’s strong close in the U.S., which was fueled by greater demand for higher-yielding assets after the release of a disappointing U.S. Non-Farm Payrolls report. Investors continued to come in on the long side throughout the session, leading to the strong finish.

The higher close helped the Aussie index break a three-day losing streak, and may have signaled the start of another “risk-on” rally. Investors jumped on equities early in the session on increased bets the Fed is less likely to raise rates at its September meeting.

Helping to generate the upside momentum were strong performances in the financials and materials sectors. All four major banks posted solid gains. Mining giants BHP and Rio Tinto also finished the session with strong performances.

Traders also had the opportunity to react to fresh domestic economic data on Monday. The TD Securities-Melbourne Institute said that inflation in Australia rose in August. Their proprietary gauge rose 0.2 percent from July and is up 1.2 percent on the year. This is, however, below the Reserve Bank of Australia’s target.

The Australian Bureau of Statistics said that job advertisements rose in August. Their report showed a 1.8 percent increase, up from minus 0.8% the previous month. This put it at a 4-year high.

The index derived most of its gain from a 2.27 percent increase in the Materials sector. However, gains were capped by a 0.22 percent loss by the Discretionaries sector.

Individually, Alumina rose 8.36 percent and Regis Healthcare lost 16.67 percent.

With U.S. investors returning on Tuesday, the S&P/ASX 200 is likely to take its direction from the movement in the U.S. indices. These investors are going to have to decide whether the disappointing jobs data means a September rate hike is off the table, or still a possibility. Taking it off the table will be supportive for stocks because it will lead to increased demand for higher risk assets. Leaving in the possibility of an early rate hike will likely be bearish for stocks.

Additionally, last week’s stock market gains may have been fueled by thin trading conditions. The bigger investors may not want to chase prices higher so we could see a break triggered by profit-taking and position-squaring. This could influence S&P/ASX 200 investors, leading to a similar move.

I’d continue to monitor the price action in the U.S. indices for clues as to the short-term direction of the Australian Index. Today will be all about “risk-on” or “risk-off”.