January and February rollercoaster over, how will March differ? ASX futures up 7 points.

In January this year, the ASX 200 and S&P 500 were pretty well correlated, both experiencing a dip mid-month and a recovery into the end of the month. February was shaping up to echo the same pattern, and the theme was certainly repeated in the US - the S&P 500 closed above its January high three times last week. In Australia, however, the ASX 200's end-of-month recovery was dealt a hit from intense selling in BHP and the big banks, and we're sitting roughly equidistant from year-to-date highs and lows. In March, I get the sense that Australia and the US will be dealing with two very different sets of problems.

If trading were a boxing match and months were the equivalent of rounds, then the sellers have won 8 out of the last 12, and the big question for Australia's big banks is whether February was the knock-out blow. And it really is a game of seller-exhaustion, something fuelled by fear and a willingness of buyers/holders to capitulate. In Australia, this will require the banks to win back the hearts and minds of investors following a catalyst last week that has brought intensified domestic and international focus on their bull-market lending practises linked to residential property sales, and at the same time we'll need to see continued falls in commodity price volatility to help the likes of BHP put a particularly punishing period behind them.

In the US it's a different story. My broad observation is that the copious amounts of central bank assistance that has taken place in the US economy since the GFC has come to an end. The problem? A potential fiscal solution involving direct cash stimulus to consumers can be easily blocked by the Republican-controlled Senate; and even if this changes during the Senate election in November this year, we're still almost a year from seeing the beginning of the new term. With Republican Senate Leader Mitch McConnell's continued distain of President Obama made clear over the current ructions involving the nomination of a new Supreme Court Justice, the US economy is going to have to fend for itself in 2016 without increased support from government and The Fed.

This will make the focus on economic data much more important than it has been in the last eight years, because previously the impact of poor releases on jobs, consumer confidence and housing starts etc. has been diluted due to the assumption that The Fed would step in and pump markets up if economic data got too worrisome.

To conclude, markets will remain vulnerable in March because many of the potential rescue efforts out of the US that short-sellers fear are not present, and in Australia buyers are not excited enough to scare off sellers. So I would be closely watching the ability of US markets to stand on their own two feet and continue to recover from mid-February lows. If a market recovery in the US coupled with a similar pattern in Europe can bring about a rising tide of buyers, the sellers in Australia could be defeated. Today's second chart shows the US market volatility remains elevated.


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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