Local market looking at back-to-back gains

Local market looking at back-to-back gains

By Miguel Audencial (Sales Trader, CMC Markets)

The Australian market is likely to follow the performance of its US counterpart overnight to post back-to-back days of gains.

The concerns of the market that prompted a sell-off in recent weeks appear to have subsided. The first quarter US GDP figures increased lower than forecast which the market read as a signal that the US Fed is likely to step on the brakes at a later date than previously feared. The president of the Federal Reserve Bank of Richmond, Jeffrey Lacker, further eased investors’ concerns after he said ‘the central bank was not anywhere near to making cuts in its balance sheet’. He also said the tepid 1.8 per cent GDP figures were consistent with his outlook.

This occurrence in the US market where bad economic data equates to good market performance is likely to continue in the short term as investors continually speculate on when exactly the US Fed will start to slow down its current quantitative easing program.

The decrease of the overnight borrowing rate in China to a manageable rate yesterday also eased market concerns and contributed to the confidence displayed in the overnight markets.

The price of crude oil managed to post slight gains recovering from a higher than expected inventory figure announced overnight. The encouraging demand prospects caused by the perceived possibility of delayed tapering of the current bond buying program outweighed the concerns of over-supply.
The weekly Unemployment claims and the Pending Home Sales in the US are due to be released tonight and I would not rule out the possibility that disappointing figures may cause investors to take additional risks.

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