ASX 200 Continues to Look for Higher Levels 

• ASX 200 continues to pressure the upside. 

• Aussie yields could benefit financials. 

• Commodities and materials are a bit mixed. 

The Wednesday session was slightly positive for the ASX 200, but it is worth noting that the market gave up quite a bit of the gains later in the day as we continue to see a lot of noise. All things being equal, this is a market that has been trying to threaten the AU$8200 level but has not been able to break above it. With the recent action and the reality that the area just above has been a bit of the ceiling, traders may be looking toward the United States for a bit of a clue as to where to go next. 

All of this being said, it’s probably worth noting that the United States has had a very rough session on Wednesday, and it could bleed into Australia. After all, risk appetite tends to move all markets in the same way these days as cross-border trading is much more common that it once was. With that being said, overstretched stocks in Australia may face significant headwinds over the next session or two. 

Is the economy slowing down? 

The question is going to be whether or not the global economy is slowing down. GDP seems to be cooling off in the United States, and perhaps more importantly in the short term, employment. Because of this, certain sectors are struggling while others seem to do fairly well. At this point, one of the biggest issues will be whether or not there is going to be demand for commodities. This may be part of why Rio Tinto has been bouncing along a very low level for some time. At this point, it looks like RIO simply cannot get off of the floor, and if that’s going to be the case, it gives a bit of negativity to the overall risk appetite around the world. 

That being said, Macquarie Group is at the opposite end of the spectrum, despite being in the same sector. MQG is very close to breaking out for a fresh high, as it is threatening the AU$214 level. Granted, there is the concern about a failed takeover that Rio had previously been involved in, but it also could be read as a bit of concern when it comes to demand for “things”, or commodities. 

Interest rates 

With global interest rates dropping, there is a bit of strength found in the financial sector. Australia and New Zealand Group Holdings could be a major beneficiary as traders to play the interest rate differential between what consumers may be willing to borrow, and of course where banks put their money, the bond market. As the spread widens a bit, the idea of course is that those giving out loans may be able to squeeze more profit out of that practice. ANZ is currently close to breaking above the crucial AU$30 level, an area that has been a significant barrier previously. 

For what is worth, the Australian 10-year yield is trading at 3.935%, but has been falling for a while. If the 10 year yield drops below the 3.8% level, then we could see yields drop another 20 basis points rather quickly. This would help the idea of growth and speculation in Australia, especially if the US rates drop right along with them. 

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