Broad-Based Gains for Blue Chips: Why the ASX Is Up Today
At time of writing, there have been broad-based gains for blue chip stocks and the ASX 200 is up 39.2 points.
Additionally, all of the Big Four banks gained ground, barring National Australia Bank Ltd [ASX:NAB] which is down 0.65%.
This comes on the back of the release of the Federal Budget and better than expected retail sales data out of the Australian Bureau of Statistics (ABS).
ASX is up on two factors
The Federal Budget release provided greater clarity for investors with a tax offset of up to $1,080 available to those taxpayers who earn between $48,000 and $90,000.
Treasurer Josh Frydenberg argued that this measure ‘will lift household incomes, ease cost of living pressures and boost spending at local businesses.’
Beyond the immediate jolt that tax cuts provide, there was other good news in the form of retail sales data.
The ABS released its report on retail turnover today, indicating an increase of 0.8%, well above expectations of a 0.3% increase.
Retail sales had been sluggish over December and January, so it was a welcome reprieve for markets.
The Chief Economist of CBA is quoted by Business Insider as saying, ‘perhaps consumers are spending their tax cuts in advance!’
Outlook mixed, despite a good day for the ASX
The good news is somewhat dampened by data out of the Australian Industry Group.
Their Performance Services Index (PSI) tracks key metrics for the services sector, which is the largest employer in the country.
A reading above 50 indicates improvement and a reading below 50 indicates activity levels are getting worse.
The reading for the month stands at 44.8 and the trend line is beginning to look worrisome:
Source: Australian Industry Group
As a result of this data, the outlook for the Australian economy is increasingly mixed, with greater downside risks.
The Sydney Morning Herald quotes Michael McCarthy of CMC Markets and Stockbroking, who points to the worrying recent fall in bond yields as contrasting with:
‘Recent stronger reads on global manufacturing and the consequent rally in shares, crude oil, copper and iron ore. This conflict between markets must be resolved. There is heightened potential for a violent adjustment, and Friday night’s non-farm payrolls data could trigger significant market moves.’
If this violent adjustment were to occur, then we may once again see a rise in the price of gold.
Alternatively, it could be wise to shift your attention to small-cap stocks that have a higher beta (i.e. they don’t move with the markets).
We have a more in depth look at gold, and the best way to invest in it, in our free report which is available here.
If small-caps have greater appeal, Sam Volkering reveals his top four picks for 2019, in this report.
For Money Morning