US stocks a little higher, expect some bumps over the next few sessions - ASX futures up 21 points

It is an appropriate time now to talk about next week's US Federal Reserve meeting, where its open markets committee either does nothing or raises interest rates by a tiny bit. If markets were in a more normal state, I wouldn't think it so important to talk about this; however, today's second chart shows the S&P 500 chart that is slowly recovering from late August, making a series of higher lows. It is not, however, making higher highs, and therefore it may be looking for an excuse to test the 2,000 level and fail, which can be quite typical of these patterns whereby it is more likely to break lower through the bottom trend line rather than break higher through selling resistance.

It is difficult to say how the market is going to react to whatever decision is made when the meeting finishes next Friday morning at 4am (Sydney time), so traders should be on the look-out for de-risking ahead of this announcement, which would manifest as a break and a close below that line on the second chart. Investors shouldn't worry about this so much - the US economy is actually in pretty good shape at present and, ultimately, the price of money needs to be higher there - if we were in a less tentative period of global economic growth, I think the Fed would take a quick look at its key economic indicators and hike without too much hesitation. The only metric that is failing this test is inflation, which has been struggling to move higher ever since commodity markets really came off the boil in 2011.

After next week is out of the way we'll go back to worrying about China, but, having spent hundreds of billions stimulating its economy in 2015 alone, it is reasonable to sit and wait until the rubber hits the road for that strategy - we don't know how long this will take, as it hasn't been done before in China.

Today's last chart shows the AUDUSD currency pair remaining in its downward trend channel for now, but nonetheless having reversed some of the losses from the past 10 days. This small recovery is important for the Australian stock market, because fresh lows in the Aussie will bring about fresh fears of diminishing returns for un-hedged foreign investors - so we could see some further support for ASX shares from that perspective. Take a look at the annotations on the last chart for a perspective on what recent Aussie dollar falls might mean for Chinese property investors, whose currency is pegged largely to the US dollar.


Source: Rivkin, Saxo Bank

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This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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