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

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.