CM – ASX200 falls back to earth with a thud

Tony Sycamore
June 21, 2021 6:00 a.m.

This week things started very differently. The ASX200 is currently trading down -1.85% at 7232.5, undoing a good portion of June’s 3.5% gains.

The sudden revaluation came about after the Federal Reserve abandoned its Flexible Average Inflation Targeting (FAIT) and made it clear via the dot points that it was concerned about inflation exceeding and that it could start raising interest rates earlier than expected / p> An earlier start to Fed rate hikes means less need for an aggressive rate hike cycle and likely a lower final rate. This has caused the US yield curve to flatten significantly, best illustrated by the decline in US 10-year bond yields to 1.37% from late February levels.

While lower long-end returns are a good thing for growth / tech stocks, they’re an undesirable development for value stocks and value indices like our own ASX200. A case in point is the Commonwealth Bank of Australia (CBA) share price falling over 7% from its high of $ 106.57 last week and trading below $ 99 per share.

Retail sales in Australia continued to weigh on fragile sentiment, rising 0.1% m / m in May, after 1.1% in April, falling short of market expectations of a 0.5% increase. That was the smoothest pace in three months.

While the temptation is to read the narrative that central banks are considering hike rates at a time when growth is slowing, the 14-day lockdown in Victoria is likely to be behind weaker-than-expected retail sales .

Seasonally, the last two weeks of June are the worst two weeks of the year for the S&P since 1950. The schedule coincides with the vacation schedules that go into the extended weekend of July 4th. Should the S&P500 trade lower it will likely weigh on the ASX200.

Technically, the ASX200 fell below the key support at 7260/50 mentioned in our last article on the ASX200 here

Assuming the ASX200 closed today below the support region of 7260/50, the decline is expected to extend towards support from the April highs near 7100.

Source trade view. The figures relate to June 21, 2021. Past performance is not a reliable indicator of future performance. This report does not contain any financial product advice or financial product recommendation and should not be understood as such

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