ASX 200 Financials broke resistance at 6050, signaling continuation of the up-trend after a weak correction. Rising troughs on the Trend Index indicate buying pressure. The next target is the August 2018 high at 6450.
Low inflation, with March Quarter CPI at 0%, increases the chance of another RBA rate cut. Short-term market response to this has been positive but we need to remember that the RBA will only cut rates, which are already at record lows, if the economy is going down the gurgler. Banks also face headwinds from a declining housing market and the RBNZ call for an additional $8.1 billion in common equity capital (as estimated by S&P Global Ratings).
Materials penetrated the rising trendline after encountering resistance at 13500. Expect another test of support at 12500.
The ASX 200 broke resistance at 6350, signaling another advance. Expect retracement to test the new support level (at 6350). Respect would strengthen the bull signal.
Long-term (LT) target for an advance is 7400 but I remain cautious on Australian stocks, especially banks, and hold more than 40% in cash and fixed interest in the Australian Growth portfolio.
I suspect that the RBA will resist cutting rates unless the situation gets really desperate. Ultra-low interest rates encourage risk-taking and speculative behavior, offering short-term gain but courting long-term disaster. Walter Bagehot, editor of The Economist, observed more than 100 years ago: “John Bull can stand many things, but he cannot stand 2%.” Sound economic management requires that central bankers make the hard choices, resisting pressure from commercial banks and politicians.