ASX200 succumbs to prospect of a negative Q3 GDP print ahead of RBA minutes

A remarkably resilient performance from the ASX200 last week as is it finished 1% higher at 7348, despite lockdowns in Victoria and Greater Sydney that from this week includes the key construction industry for the next two weeks.

Charts (1)

As new COVID-19 case numbers remaining stubbornly high, lockdowns will likely be extended in Greater Sydney and possibly Victoria. NSW and Victoria account for the lion's share of Australian GDP and employment.

This will likely see Australian Q3 GDP slide into negative territory, even after allowing for some bounce back into the end of Q3, following the re-opening and State and Federal government support for individuals and businesses unable to work.

A significant, although not wholly unexpected, turn of events since the RBA's Board meeting in early July, the minutes of which are released tomorrow at 11.30 am.

To recap, at the RBA’s Board meeting in July, forward guidance remained dovish. Its central scenario is that the conditions for lift-off for rates 'will not be met before 2024'. Reflecting the stronger than expected economic recovery, the RBA elected not to extend its three-year "yield target bond" from the April 2024 bond to the November 2024 bond.

The RBA also announced a more flexible approach to its latest QE program after the current program of $100bn is complete in September, reducing the pace of purchases to $4 billion a week from the current rate of purchases of $5 billion per week, and to reassess this decision in Mid-November.

Looking to tomorrow's Minutes, the market will pay close attention to any debate around the decision to signal a taper in the QE program, as well as any discussion around changing the forward guidance around the cash rate. That said, given the extensive communications from Governor Lowe following July's meeting, the Minutes are unlikely to provide any new information.

Succumbing to the deteriorating domestic COVID-19 situation and following a weak lead from Wall Street on Friday night, the ASX200 has started the week on the backfoot to be trading near 7285.40, -62.7 points (-0.85%).

Should the ASX200 break below range lows 7220/00 area, we retain a preference to buy the ASX200 towards uptrend support coming in 7100/7050 area.

asx200 daily chart

Source Tradingview. The figures stated areas of the 19th of July 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

More from ASX

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account