PMI data boosts ASX 200

Global stock markets ability to focus on the positives and ignore the negatives was on full display yesterday, as a new quarter kicked off in style.

Much better than expected Chinese manufacturing data, ensured a positive session for the ASX200, which has continued to rally this morning as strong U.S. ISM manufacturing data overnight overshadowed a disappointing U.S. retail sales report, as well as lower revisions to the final March PMI’s in Europe. Also brushed aside was the news, that results from voting in the UK Parliament confirmed that all Brexit alternatives had been rejected.

With no end in sight to the Brexit saga and the market limit long Brexit fatigue, it’s easy to understand how equity markets chose to ignore this latest development. Likewise, news of the slowdown in Europe is not new. The miss in U.S. retail sales is more concerning, however a convenient alibi was cited in the form of a delay in tax refunds.

The surprise bounce in Chinese PMI’s was led by stronger production and less contraction in external orders and provides evidence that fiscal easing is starting to take effect. It also provides reasonable grounds to expect the growth trajectory in China to improve from Q2 onwards.

The U.S. ISM manufacturing index climbed back to 55.3, led by rebounds in both new orders and employment data. There is a strong correlation between the ISM manufacturing index, U.S. growth and the performance of the S&P500, helping to explain the way the S&P500 was able to break to new cycle highs overnight.

With PMI data in the two largest economies in the world showing synchronised signs of improvement, global growth expectations should be supported in the near term.

A reassuring sign for the Australian economy and the ASX200, which received further good news earlier today from a surprising 19.1% increase in building approvals. Some payback is expected next month, however given the current narrative around the deteriorating housing market, it is still a positive development.

Also, likely to provide a welcome boost to Australian investors will be the release tonight of the Federal Budget at 7:30pm Sydney time. Seasoned traders will no doubt know that the Australian Federal Budget is typically delivered in May, but with an election required by no later than 18 May, the Government has bought forward this year’s budget delivery. The budget is likely to include substantial additional income support to households in the form of tax cuts and handouts, while maintaining broadly unchanged surplus projections.

Technically, the ASX200 competed a text book Elliott Wave “abc” three wave correction at last week’s 6096.8 low, a pattern which we highlighted for our bullish view of the ASX200 in our week ahead video here https://www.cityindex.com.au/the-week-ahead/ .

While the minimum Wave v projection has now been achieved by the ASX200 after this morning’s retest of the March 6270 high, there is scope for the current rally to extend as far as 6350/6400, using the length of Wave i as a guide. Should the current market rally extend towards 6400 in coming weeks, it would be viewed as an opportunity to lock in profits on longs, ahead of the seasonally weak month of May.

Source Tradingview. The figures stated are as of the 2nd of April 2019. 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

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