Small gains in Europe and US stocks, precious metals rise as US dollar slides, ASX futures down 14 points

The Australian stock market overshot a little yesterday, causing our night futures to moderate despite gains in Europe and the US. The ASX 200's 100+ point rally yesterday was interesting in that there were a couple of poorly-received earnings announcements this week that might have normally soured investor sentiment as we look out to the rest of the earnings season. However, despite these, and a soft operating update from Macquarie (MQG), the market closed bullishly into 4pm.

In addition to this (and I'll just whisper this in your ear, not to tempt fate), this week is the first since late December that we've seen a small but symbolic uptrend in Chinese equities form. So much of the maniacal 2015 rally in Chinese equities has been reversed and it would be remiss of any trader not to be mindful of the link between this phenomenon, combined with the fear driven by Chinese currency adjustments by the People's Bank of China, when trying to assess when an end to price volatility might end.

With what oil and other commodity prices have done over the last couple of years, combined with Europe's economic problems and the uncertainty over what might happen when Europe and the US one day return to normal interest rates, it is understandable that a lot of money has been scared away from liquid capital markets. At times like this, illiquidity can actually be a great mitigator of short-term risk, as it thwarts the plans of those who might otherwise sell and run for the hills. This is why owning property, commercial property trusts, small-caps, micro-caps etc. can sometimes (not all the time!) feel so comfortable, because the buyers aren't there to give panic sellers an exit, and therefore price can often remain more stable throughout periods of volatility in more liquid markets.

In today's chart I'll return to the theme of a falling US dollar and the impact that this is having on the AUDUSD and NZDUSD, as well as US dollar spot gold. Today's first chart shows the Aussie and Kiwi rallying significantly higher over the last few sessions, and in the second chart you can see the US dollar index (blue) falling significantly from the 100 region, while gold (in pink) has rallied from a low of US$1,050 in December to US$1,155 now.

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 or by phoning +612 8302 3600.

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