ASX200 falls back to earth with a thud

Another milestone for the ASX200 last week as it traded to fresh all-time highs, closing the week +0.8% at 7368.9, leaving year-to-date performance at an impressive +13.6%.


This week, things have started on a very different note. The ASX200 is currently trading down -1.85% at 7232.5, wiping out a good chunk of June's +3.5% gains.

The sudden repricing has come about after the Federal Reserve abandoned its Flexible Average Inflation Targeting (FAIT) and made clear via the dot points that it is concerned about an inflation overshoot and may begin raising rates sooner than expected.

An earlier start to Fed rate hikes means less need for an aggressive rate hike cycle and likely a lower terminal rate. This has resulted in a significant flattening of the US rates curve, best illustrated by yields on US 10 year bonds falling to 1.37%, back to where they were in late February.

While lower long-end yields are a good thing for growth/tech stocks, they are an unwelcome development for value stocks and value indices like our own ASX200.

A case in point the share price of the Commonwealth Bank of Australia (CBA) has fallen over 7% from last week's $106.57 high, to be trading back below $99 a share.

Further weighing on fragile sentiment, retail sales in Australia rose by 0.1% m/m in May, slowing from 1.1% in April and missing market expectations of a 0.5% rise. This was the softest pace in three months.

While there is a temptation to read into the narrative that central banks are considering raising interest rates at a time growth is slowing, the 14-day lockdown in Victoria is likely behind the softer than expected retail sales number.

Where to from here for the ASX200?

Seasonally the last two weeks of June are the worst two weeks of the year for the S&P since 1950. The timing is consistent with vacation schedules heading into the 4th of July long weekend. Should the S&P500 trade lower it will likely weigh on the ASX200.

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

Presuming the ASX200 posts a daily close below the 7260/50 support region today, the expectation is for the decline to extend towards the support provided by the highs of April, near 7100.

ASX200 falls back to earth with a thud

Source Tradingview. The figures stated areas of the 21st of June 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