Australian Market Tipped For Soft Start

Published in The Age, October 2018 by Timothy Moore

Australian shares appear set to fall at the start of the week, distancing themselves from the rally that lifted US stocks over the weekend.

ASX futures were 51 points or 0.9 per cent lower at 7am AEDT Saturday. The Australian dollar slipped 0.1 per cent.

In contrast, US stocks rallied the most in months on Friday as tech stocks, hammered during the two-day sell-off, rebounded as some strategists expected. Atlassian caught the wave too, rising 4.3 per cent. Despite the bounce, the Aussie tech company is 16.8 per cent below the record high set a little more than two weeks ago.

Commsec chief economist Craig James said the Australian market could quickly turn around again.

"It's hard to reconcile that (lower start predicted) with everything else that's going on - we had oil higher, a number of the base metal prices higher," Mr James said.

"We've just got to take that at face value and see how it plays out, but our expectation is there'll be a few more bumps over the next week as markets adjust to the fact that (US) interest rates are going up."

The Dow lifted 287 points in Friday New York trade, helping to pare the loss on the week to 1107 points. 

The S&P 500 closed 1.4 per cent higher to end the week; the Nasdaq rose 2.3 per cent. The VIX retreated more than 14 points to 21.3 after initially spiking as high as 26.8 - its highest since February's market turmoil.

LPL Financial pointed to news that US and China trade talks will likely resume next month at the G20 summit, along with several major banks kicking off third-quarter earnings season with generally upbeat results.

"These bouts of volatility can certainly be unnerving for investors, but we recommend focusing on the fundamentals," LPL chief investment strategist John Lynch said. 

"Corporate earnings growth is expected to remain strong in the third quarter amid a very healthy economic backdrop."

The S&P/ASX 200 volatility index eased somewhat in Friday AEDT trade, sliding 6.5 per cent to 20.37 - still 88 per cent higher than where it was on September 28.

Wealth Within analyst Dale Gillham said the sell-off in Aussie banks helped drive the ASX lower, adding "now is still not the time to be buying bank stocks".

Mr Gillham also said it was important to note that local shares have been declining since late August. 

The All-Ordinaires has shed 7 per cent since August 30, albeit the biggest drop took place last week and the index edged 0.2 per cent higher on Friday.

Locally, the week ahead will focus on the Labour Force data on Thursday.

"After two months of the unemployment rate at 5.3 per cent, we're picking a fall to 5.2 per cent in the September data (mkt: 5.3 per cent), alongside another strong employment print," NAB markets economist Kaixin Owyong said.

"Both NAB's internal data and the NAB Survey Employment Index suggest that employment growth was strong in September, with our modelling pointing to a large 35,000 rise in employment."