Sluggish US Markets Could Cause Hesitation in Australia 

• Copper gains almost 4% on Friday in the US. 
• Materials should continue to look attractive in this environment. 
• On an index scale, there is a lot of churn and therefore specific companies to be targeted. 
• Inflation continues to be a major driver of commodities. 

The Friday session in the United States was a little hesitant, as it was an options expiration day in New York, and indices of course would have a lot of volatility because of this. That being said, it’s also worth noting that the American stock markets have been a little overdone. 

This isn’t to say that the stock markets won’t continue to go higher, but it does suggest that perhaps traders might be a bit more cautious on Monday in Australia, as the latest information they have to work from is what happened in New York. As American traders lose some of their appetite for risk, at least in the short term, that could make the ASX 200 a bit sluggish. 

That being said, the S&P 500 did offer a fresh, new high, and of course has been very strong for some time. Because of this, the trend seems very much intact, and one could assume that eventually the bullish behavior translates into higher levels for the ASX 200. 

Australia and Hard Assets 

One area that could be absolutely vital for the ASX 200 will be materials. As Australia is a major exporter of hard commodities to most of the developing world, as well as much of the developed world, it does make a certain amount of sense that paying attention to commodities will be the way going forward. The copper futures market on Friday remained very positive, and in fact even broke above the crucial $5 level. Gaining almost 4% during the day almost certainly will put the spotlight on some of the biggest companies in Australia such as BHP, Fortesque, and Rio Tinto. In fact, almost all of the companies they did gain on Friday in Australia were materials. BHP gained 79 basis points, while Fortescue gained 1.24% and RIO Tinto gained 1.35% for the session. 

Ultimately, while the ASX 200 struggles with the $7900 level, the reality is that there are some companies that are going to do quite well, and in an environment where the commodity market is essentially on fire, it does make sense that many traders will be looking toward the bigger names to take advantage of a way to play copper, iron, and aluminum strength as an example. 

While the ASX may continue to churn, the reality is that there is a lot of interest out there in commodities on the market so there will definitely be clear winners. As for the index, unfortunately it is heavily laden with financial companies, which seem to be struggling a bit as of late. In other words, this is becoming a “stock pickers market” again. While the index is still bullish, there is a lot working against it at the same time as people worry about the global consumer and therefore the global borrower. With the setup going into the new week, and very well looks like a lot of the familiar winners are still very much in the driver’s seat.  

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